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How Did Brocade Communications Perform in Fiscal 4Q16?

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Part 2
How Did Brocade Communications Perform in Fiscal 4Q16? PART 2 OF 6

Inside Brocade’s SAN Business Performance in Fiscal 4Q16

SAN revenues fell 7% YoY in fiscal 4Q16

Brocade Communications’ (BRCD) total SAN (storage area network) segment revenues fell 7% YoY (year-over-year) in fiscal 4Q16 to $303 million. SAN’s product revenue rose by 8% QoQ (quarter-over-quarter).

The YoY decline was driven by an 18% fall in director sales and a 13% fall in embedded switch sales. This decline was offset by a 7% rise in fixed configuration switch sales. In fiscal 2016, Brocade’s SAN product revenue was $1.3 billion and fell 6% YoY. According to Brocade’s earnings press release, this decline was “primarily due to certain partner business transitions and a challenging storage spending environment, leading to lower director and embedded switch sales.”

Inside Brocade’s SAN Business Performance in Fiscal 4Q16

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The above chart shows that SAN product revenue accounted for 55% of total revenue in fiscal 4Q15, 48% in fiscal 3Q16, and 46% in fiscal 4Q16.

Why Brocade’s non-GAAP gross margin fell in fiscal 2016

Brocade’s fiscal 2016 non-GAAP (generally accepted accounting principles) gross margin fell 50 basis points YoY to 67.9%. Brocade’s shift in product mix (from SAN to IP Networking) impacted its gross margins in fiscal 2016.

In fiscal 3Q16, Brocade’s non-GAAP gross margin fell 210 basis points to 66.5% as well, driven by its lower SAN revenue and an unfavorable shift in its product and customer mix.

According to market research firm Gartner, the emerging markets of China (FXI) and India (INDA) are expected to drive SAN revenue growth due to “greenfield” deployments.

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