Will Brocade Weave Another Great Report This Week?

Shares of Brocade Communications Systems (Nasdaq: BRCD  ) have climbed 15% since blowing by analyst expectations in the second quarter. The company is in the habit of leaving Wall Street's targets eating dust. Will the maker of enterprise-class networking gear shock the Street again this week?

When Brocade reports third-quarter results after Thursday's closing bell, analysts expect to see earnings jumping 33% year over year to $0.12 per share. Sales should climb a modest 7% to $537 million. Management's own guidance centers on revenue of $535 million and the same $0.12 non-GAAP earnings target, so the traditional guiding lights are closely aligned this time.

In the longer view, Brocade expects to gain market share in the networked storage market, based on rapid adoption of the company's high-performance storage fabrics. That's an important market because these products are perfect for meeting the data-hungry storage needs of virtualized data centers and big data manipulation. These are grade-A growth catalysts, and profitable products to boot. As a result, management raised its cash flow guidance for the 2012 fiscal year by 6%.

Brocade's market-share gains are made easier by chief rival Cisco Systems (Nasdaq: CSCO  ) searching for a strategy in many of its non-core segments. Storage networking is a big kahuna for Brocade and QLogic (Nasdaq: QLGC  ) , but less so for the massively diversified Cisco. Long-term investors should scour this week's report for signs of strong or slipping traction in Brocade's storage division, and adjust investing theses accordingly.

In other news last week, Brocade was awarded $112 million in a patent infringement and unfair competition lawsuit against privately held A10 Networks. But that loot will fall into the company's fiscal fourth-quarter report, assuming that A10 doesn't appeal the jury's decision. Either way, it's not money in the bank that would apply to the third quarter.

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