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Can Brocade Kick Cisco and Juniper While They're Down?

By Dan Caplinger - Nov 14, 2013 at 2:30PM

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Brocade Communications has seen solid gains lately, but can it use its storage-solutions expertise to beat out Cisco Systems and Juniper Networks in a tough environment for the networking-solutions industry?

Brocade Communications ( BRCD ) will release its quarterly report on Monday, and the data storage and networking specialist has investors hoping for strong results. Big gains in the stock's price over the past few months point to a possible turnaround for the company, but the question Brocade has to answer is whether it can stand up to Cisco Systems ( CSCO 1.30% ) and Juniper Networks ( JNPR 0.58% ) at a time when both Cisco and Juniper have seen challenges to their own businesses.

Brocade Communications finds itself in one of the highest-demand areas of technology right now, as the big-data initiative has driven enterprise customers' appetites to bolster their cloud presence with storage solutions to help them gather and analyze more information. Yet Cisco and Juniper have seen new challenges in their core networking businesses, and both companies have pushed their way into storage-area networking as a potential growth catalyst. Can Brocade fend off greater competition and restore its past growth rates? 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 report.

Stats on Brocade Communications

Analyst EPS Estimate

$0.18

Change From Year-Ago EPS

5.9%

Revenue Estimate

$555.08 million

Change From Year-Ago Revenue

(4%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance

Can Brocade earnings grow faster?
In recent months, analysts have raised their views on Brocade earnings slightly, increasing their full-year fiscal 2014 estimates by $0.02 per share. The stock has downright soared, though, posting gains of more than 20% since mid-August.

Much of the rise Brocade's share price enjoyed came near the beginning of the quarter, when the company announced strong results in its July quarter. Brocade boosted operating margins by more than two full percentage points, helping produce much stronger net income and upgraded guidance for the October quarter. CEO Lloyd Carney pointed to better conditions in the storage market that supported Brocade's overall results.

Still, Brocade will have to deal with Cisco and Juniper. Cisco's earnings results last night showed the conundrum that the networking giant is in, as it foresees further sluggishness from emerging-market economies that have suffered slowdowns in recent years. Meanwhile, both Cisco and Juniper have felt the impact of the U.S. federal government shutdown to some extent. Because of their relatively weakness lately, both Juniper and Cisco will undoubtedly push harder to shore up their competitive positions in the industry.

But Brocade is responding with technological innovations of its own. Earlier this month, Brocade presented a proposal to extend the Neutron OpenStack networking framework, with its Dynamic Network Resource Manager proposal presenting an option that enterprises can use to create cloud-computing environments that they can customize more easily to their specific needs. By embracing open standards, Brocade hopes to address what it calls "Cisco campus lock-in," giving enterprises more flexibility to come up with unique solutions to their own challenges. Juniper has also jumped on this bandwagon, embracing an open-source solution for its OpenContrail software-defined networking controller, but Brocade hopes it can make a stronger impression with various partnerships designed to emphasize its independence.

In the Brocade earnings report, watch to see whether the company can sustain its cost-cutting success while also finding opportunities for revenue growth. With many companies reporting weak sales, Brocade could rise sharply if it can buck the trend and find more opportunities to take business from Cisco and Juniper while they're down.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$56.96 (1.30%) $0.73
Brocade Communications Systems, Inc. Stock Quote
Brocade Communications Systems, Inc.
BRCD
Juniper Networks, Inc. Stock Quote
Juniper Networks, Inc.
JNPR
$31.45 (0.58%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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