Storage networking specialist Brocade Communications Systems (NASDAQ:BRCD) reports second-quarter earnings tomorrow. Has the company put the bad times behind it, heading into greener pastures, or is that bad moon still on the rise? Let's find out.

What analysts say:

  • Buy, sell, or waffle? Sixteen Wall Street firms cover Brocade, and their opinions are evenly split between buy and hold recommendations. In our own Motley Fool CAPS database, it's a four-star stock on the strength of 303 recommendations. Add your take today -- the wisdom of crowds can be amazing.
  • Revenue. The analyst consensus points to $327 million, the upper boundary of management's $2 million-wide guidance range.
  • Earnings. There's updated guidance here, too, predicting $0.11 to $0.12 in earnings per share; the Street gang clings to the lower end of that range.

What management says:
In that guidance update, released two weeks ago, CEO Michael Klayko said things look good. "We believe we maintained and reinforced our leadership position across our product lines and remain optimistic about our target markets as we enter a seasonally stronger period for our industry-leading data center solutions."

So I'll be curious to hear whether management still thinks it's stealing market share from competitors like Emulex (NYSE:ELX), Cisco (NASDAQ:CSCO), and QLogic (NASDAQ:QLGC) in this quarter.

What management does:
It's easy to see the addition of rival McData a year ago, as sales and margins both got a serious boost from that acquisition. You rarely see a merger working out as nicely as this one from a perspective of operational strength.

Margin

1/2006

4/2006

7/2006

10/2006

1/2007

4/2007

Gross

56.3%

56.2%

58.2%

60.5%

61.5%

58.4%

Operating

7.7%

6.9%

11.0%

16.7%

19.2%

16.0%

Net

4.3%

2.7%

7.1%

9.0%

11.3%

8.1%

Growth (YOY)

1/2006

4/2006

7/2006

10/2006

1/2007

4/2007

Revenue

(4.9%)

1.4%

17.6%

30.7%

38.1%

55.8%

Earnings

(61.0%)

(79.6%)

(21.9%)

56.8%

267.5%

362.6%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I just grabbed a stock quote for Brocade, and was greeted with a big, green $6.66. Um, is that an omen?

All jokes aside, this company has had a rocky ride since the former executive team got caught with its hand in the stock-option cookie jar. Ex-CEO Greg Reyes was recently convicted on 10 counts of various flavors of fraud, sending his case into another round of appeals. And ex-CFO Michael Byrd just got his own civil case -- the fun never ends.

That dirty business is in the past now, though. Brocade has corrected its past financial statements, there's new blood at the top, and the Brocade-McData combination looks like a hit with customers. The fibre-channel storage scene is now less fragmented, making it easier for data-center managers and CIOs to decide on an architecture.

If the guidance figures hold true, they'd create a net margin of roughly 13.5%, in line with the year-ago margin, and halting the recent efficiency drop. I'm inclined to let bygones be bygones here, and those four twinkling CAPS stars tell me that a lot of my fellow investors feel the same way.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.