Brocade Communications (NASDAQ:BRCD) will release its quarterly report on Tuesday, and the stock has climbed substantially in recent months, as investors begin to expect bigger and better things from the demands of Big Data, and other technological initiatives on the network-storage and Ethernet sector. Yet, those prospects haven't yet translated to strong growth in Brocade earnings, leaving shareholders concerned about whether the company will take advantage of favorable trends in the industry when they appear.

Value plays in the tech sector are few and far between, but Brocade has traded at relatively modest valuations for a long time. The problem, though, is that those low valuations merely reflect the skepticism that investors have about whether the company can ever return to a higher-growth trajectory. Let's take an early look at what's been happening with Brocade Communications over the past quarter, and what we're likely to see in its quarterly report.

Stats on Brocade Communications

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$518.84 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How can Brocade earnings begin to accelerate?
Analysts have trimmed their views in recent months on Brocade earnings, with $0.03 per share reductions in both July quarter and full-year fiscal 2013 estimates. The stock, though, has ignored those concerns and climbed substantially, with gains of more than 25% since early May.

Brocade's April-quarter results showed the dilemma that the company's investors face. On one hand, earnings came in better than expected, as adjusted net income rose 8%. But revenue fell almost 1% from the year-ago quarter, and Brocade's guidance didn't lead shareholders to conclude that strong growth would be forthcoming in future quarters.

Brocade has been doing its best to highlight its role in the Big Data movement. In June, the company made a presentation at the Hadoop Summit in San Jose, talking about its Ethernet-fabric offerings, and explaining why these products, which are specifically designed for virtualized data-center environments, are superior to traditional Ethernet architecture designs.

Yet, competition remains fierce. Cisco (NASDAQ:CSCO) has muscled its way into the storage-area networking space, which is responsible for more than half of Brocade's revenue. With Cisco's market share dwarfing Brocade's and hampering its storage-area network business, it's becoming increasingly likely that Brocade will have to focus more on its Ethernet business for future growth. In the virtualization space, Oracle (NYSE:ORCL) and VMware (NYSE:VMW) have both been working hard to cement their positions, although a partnership between Brocade and VMware should give Brocade a stronger presence in the cloud-based data center business. Like Cisco, Oracle is big enough to threaten Brocade with a potential price war, if necessary, to bolster its competitive position within the industry.

In the Brocade earnings report, watch to see how the company's various segments shape up. If Brocade can't stand up to competition in its core storage business, it could take a while for the potential of Ethernet fabric to make up for slowing storage revenue. In the long run, though, that might be the best way for Brocade to get out of no-growth mode and move forward more aggressively.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cisco Systems and VMware. The Motley Fool owns shares of Oracle. and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.