Someone please tell the fat lady she will not be needed this evening. Just when you thought Brocade Communications
The company, which is a supplier of switches used to connect data storage systems, reported revenue of $550 million and a profit of $0.16 (excluding one-time charges), both of which beat analyst forecasts. Its storage business, which accounts for roughly 70% of sales, exhibited sequential growth of 8% sales while its Ethernet segment showed 12% sequential sales growth.
Two figures that were represented in Brocade's report that management did pay much heed to but I think are important are the gross margin and cash from operations.
On a year-over-year basis, Brocade improved its gross margin by 70 basis points to 62.9%. This is the primary reason that net income came in as strong as it did even though sales were up only marginally over the year-ago period.
Also of note, the company's cash from operations was $206 million, a clean $100 million more than the fourth quarter of last year. This extra cash flow allowed the company to pay down another $50 million on its revolving credit line and purchase 46.5 million shares, or 9% of its outstanding float, during the quarter. Do you think Brocade's management believes in their long-term outlook? I'd say purchasing $200 million worth of stock during the quarter is a prime indication of that.
Brocade's strong results should only reinvigorate the rumor that a larger rival may be interested in acquiring the company. Brocade currently has supply partnerships with IBM
Finally, there's the case of Brocade's valuation relative to its peers. It would be wrong to assume that Brocade is going to grow as quickly as F5 Networks
What's your opinion on Brocade? Is the company a buyout candidate, a stand-alone winner, or am I misplacing my bullishness?
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He still wonders if anyone reads these disclosures and as such would love to discreetly profess his love for the return of Beavis & Butthead and see if anyone notices. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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