Storage networking specialist Brocade (Nasdaq: BRCD) just reported a very strong quarter, with 32% year-over-year revenue growth and three times the earnings. What's more, these are organic growth numbers, by and large. Brocade has bought a few businesses over the past year, but none large enough to have a meaningful impact on sales or earnings so soon.
I won't be able to say that when the next quarterly report comes around, though. The McDATA acquisition, which closed right at the end of this reporting period, will bring in plenty of fresh revenues, though it will drag down Brocade's impressive profit margins somewhat. McDATA's product catalog doesn't overlap a great deal with Brocade's, so the combined company will have a much wider reach than either of the two components.
Already, the competition is starting to look nervous. QLogic (Nasdaq: QLGC) just teamed up with Hewlett-Packard (NYSE: HPQ) to produce a new virtual fiber channel storage connector technology. That's OK -- strong competition forces businesses to stay focused and innovative if they want to survive.
Brocade management is boasting that its service certification leads computer professionals to the highest salaries in the support industry. On top of that, it just signed global service agreements with both IBM (NYSE: IBM) and Network Appliance (Nasdaq: NTAP) to ensure that those partners' storage-hungry customers have access to that expensive but critical support, whenever and wherever they need it.
Management is starting to build some serious business momentum here. New customers lead to more profit, which gives Brocade some freedom to spend on its future and generate even more of that tasty growth. Like I said, this company is hungry for acquisitions that make sense, but it is also ramping up R&D spending and capital expenditures like never before. And armed with the albatross-like wingspan those McDATA laddies brought in, this is a dangerous competitor now -- even to giants like JDS Uniphase (Nasdaq: JDSU), Hewlett-Packard, or Cisco (Nasdaq: CSCO) -- and well worth keeping an eye on.
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Fool contributor Anders Bylund holds no position in any of the companies discussed here, dang it. You can check out Anders' holdings if you like, and Foolish disclosure takes up almost no space at all on your hard drive.
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