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

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Part 3
Brocade's Revenue Fell Shy of Estimates in Fiscal 1Q17 PART 3 OF 4

Why Brocade’s IP Networking Segment’s Revenue Rose in Fiscal 1Q17

IP Networking revenues rose 51% YoY

In fiscal 1Q17, revenue from Brocade Communications Systems’ (BRCD) IP Networking business rose 30% YoY (year-over-year) to $174 million, including $72 million from its acquisition of Ruckus Wireless (RKUS).

The IP Networking segment’s rise in revenue was partially offset by lower switching and routing sales. The segment’s revenue fell 32% quarter-over-quarter, as Broadcom (AVGO) plans to divest Brocade’s IP Networking business. Brocade’s IP Networking product revenue accounted for 29% of its total revenue in fiscal 4Q15, 35% in fiscal 3Q16, and 39% in fiscal 4Q16.

Why Brocade’s IP Networking Segment&#8217;s Revenue Rose in Fiscal 1Q17

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Why is Broadcom looking to divest some of Brocade’s businesses?

Broadcom has a history of acquiring medium-sized companies and selling their non-core assets immediately. It acquired LSI in 2014 and sold its flash storage business to Seagate and Intel. It acquired Broadcom in 2015 and sold the latter’s wireless IoT (Internet of Things) business to Cypress.

Now, Broadcom is looking to keep Brocade’s FC SAN business and sell its IP (internet protocol) Networking and Global Services business, as they compete directly with the former’s key customers Cisco Systems (CSCO), Intel (INTC), and Hewlett-Packard Enterprise (HPE). Broadcom has no plans to compete with its customers, so it’s planning to sell the competing product portfolio.

Brocade’s IP Networking business comprises a full portfolio of wireless and campus networking, data center switching and routing, and software networking solutions. The divestiture of this business would include the Wi-Fi device maker Ruckus Wireless, which Brocade recently acquired for $1.2 billion.

Cisco, Juniper, and Arista may show interest in acquiring Brocade’s IP Networking business, as it could help them to expand their market shares.

Correction: This article originally defined IP incorrectly as “intellectual property” rather than “internet protocol.” We regret this error.

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