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How Did Brocade’s SAN Business Perform in Fiscal 3Q16?

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SAN revenues fell by 9% YoY in fiscal 3Q16

Brocade Communications’s (BRCD) total SAN (storage area network) segment revenues fell by 7% YoY (year-over-year) in fiscal 3Q16 to $338 million. SAN’s product revenue fell by 9% YoY, and its Global Services revenue rose by 7% YoY in fiscal 3Q16.

Its SAN product revenue fell by 9% year-over-year and by 5% quarter-over-quarter to $282 million in fiscal 3Q16.

Brocade’s Fixed Switch segment revenues rose by 3% YoY, driven by increased demand from all-flash array deployments. However, a sluggish storage environment meant a decline in Director sales for Brocade. Its Embedded segment sales were flat in fiscal 3Q16.

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In fiscal 1Q16, Brocade’s SAN revenue performance was primarily driven by its growth in Director sales and offset by declines in its Switch and Embedded sales in fiscal 1Q16. Continued growth in overall Fibre Channel storage for Brocade is also a strong indicator of the durability of its Stored Networking business.

Gross margin negatively impacted by declining SAN revenues

In fiscal 3Q16, Brocade’s non-GAAP[1. generally accepted accounting principles] gross margin fell by 210 basis points to 66.5%, driven by its lower SAN revenue and an unfavorable shift in its product and customer mix.

Brocade’s gross margin also fell due to the impact of purchase price adjustments and an increase in inventory reserves.

Emerging markets expected to grow SAN growth

According to Gartner, emerging markets such as China (FXI) and India (INDA) are expected to drive SAN revenue growth due to “greenfield” deployments.

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