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Brocade's Revenue Fell Shy of Estimates in Fiscal 1Q17

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Brocade's Revenue Fell Shy of Estimates in Fiscal 1Q17 PART 2 OF 4

How Did Brocade’s SAN Segment Perform in Fiscal 1Q17?

SAN revenue fell 12% YoY in fiscal 1Q17

Technology (QQQ) company Brocade Communications Systems’ (BRCD) total SAN (storage area network) segment’s revenue fell 12% YoY (year-over-year) to $307 million in fiscal 1Q17. SAN’s product revenue rose 1% quarter-over-quarter.

The YoY fall was driven by a 20% fall in the Fibre Channel segment and the Embedded Switch segment. The company’s revenue rose sequentially, driven by its fixed-configuration switch revenue, which rose 6%.

How Did Brocade’s SAN Segment Perform in Fiscal 1Q17?

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According to Brocade’s earnings press release, “The year-over-year and sequential revenue performance was impacted by competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition of Brocade by Broadcom.”

The SAN segment’s product revenue accounted for 53% of the company’s total revenue in fiscal 1Q17, 46% in fiscal 4Q16, and 61% in fiscal 1Q16. According to market research company Gartner, the emerging markets of China (FXI) and India (INDA) are expected to drive SAN revenue growth due to their greenfield deployments.

Why did Broadcom acquire Brocade?

Brocade manufactures fiber channel storage area network switches that connect storage systems to data center computers and complement Broadcom’s (AVGO) networking and storage portfolio. Brocade’s fiber channel business is falling as fiber is being replaced by Ethernet. Despite this, Broadcom is buying Brocade in order to take advantage of the latter’s strong cash flow and revenue.

Brocade has been looking to diversify through acquisitions, as it’s realized that there are no more growth opportunities left in the fiber channel space. Despite multiple acquisitions, Brocade couldn’t escape the fiber channel SAN market or competition with Cisco Systems (CSCO) on a large scale.

Brocade’s fiber SAN switches, which connect storage networks to data center computers, will complement Broadcom’s network interface cards, host bus adapters, and integrated circuits. Broadcom has already acquired Brocade’s rival Emulex.

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