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Where Brocade’s IP Networking Business Is Headed in Fiscal 2Q17

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Competition with heavyweights in the IP networking space

Brocade’s (BRCD) IP Networking business consists of switching, routing, and WLAN (wireless local area network) subsegments. Brocade competes with network infrastructure giants like Cisco Systems (CSCO), Hewlett Packard Enterprise (HPE), and China’s (FXI) Huawei. But while Cisco has the majority market share in the switching, WLAN, and routing space, Huawei is gaining pace quickly and increasing its market share.

Switching and routing are mature markets with low revenue growth. The worldwide Ethernet switching market rose 3.5% YoY to $6.7 billion in 4Q16, whereas the global routing market is projected to be a $14 billion market, rising at a CAGR (compound annual growth rate) of 1% over the next three years.

According to IDC, the total WLAN market rose 3.1% YoY (year-over-year) in calendar 4Q16 and rose 7.2% YoY in calendar 2016.

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Revenue rise in fiscal 1Q17

Revenue from this business rose 30% YoY (year-over-year) to $174 million in fiscal 1Q17, primarily driven by its acquisition of Ruckus Wireless (RKUS). This revenue growth was partially offset by lower switching and routing sales. Sales fell 32% QoQ (quarter-over-quarter) as Broadcom (AVGO) is looking to divest Brocade’s IP Networking business.

In fiscal 1Q17, Brocade’s IP Networking business accounted for 30% of the firm’s total revenue, as compared to 39% of revenue in fiscal 4Q16 and 23% of revenue in fiscal 1Q16.

Continue to the next and final part of this series for a look at the analyst recommendations and targets.

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