Struggling Brocade plans extreme makeover

Brocade Communications Systems plans to boost its prospects by remaking itself from a struggling supplier of hardware to one that offers an expanded mix of switches, software and services.

Declining revenue and the resignations of its CEO and chief financial officer over the past year have stressed the company and prompted the creation of the new plan.

Users interviewed last week agreed that Brocade has to find ways to grow its business but said they likely won't turn to the company for software or services.

Scott Saunders, director of MIS at Paxson Communications, a Brocade customer for six years, said he's not interested in buying such products from a switch maker.

"That's not usually the channel you go to for that kind of stuff," he said. "That is the trend, though, because software and services is where the bucks are, and hardware is such a commodity, even though their switches are still kind of pricey."

Rick Curry, vice president of infrastructure engineering at Union Bank of California, said that he isn't likely to purchase storage management software from Brocade. "I'd rather align with a storage management solution that is more vendor-neutral," he said in an e-mail.

Curry expects Brocade to be purchased by a larger vendor. "I would predict that Brocade is acquired by a major player in the future, which will make them stronger and position them to be more competitive with Cisco," he said.

Brocade executives wouldn't spell out what type of management software and services they expect to bring out over the next year, but the company's latest strategy follows in the footsteps of top storage vendors such as EMC and Network Appliance.

Late last month, Brocade Chief Technology Officer Dan Crain said the company wants to increase software and services revenue from 1 percent of its total revenue to 10 percent over the next couple of years. Without offering specifics, Crain said Brocade plans to add storage management software created through a mix of internal development and partnerships.

The bulk of the management software will support Brocade's Tapestry intelligent switch platform, he said.

Brocade's realignment plans come after a year of declining revenue, the resignations of CEO Greg Reyes and CFO Tony Canova, the restatement of financial reports and word of an investigation by the U.S. Securities and Exchange Commission into accounting practices involving stock options.

Greg Schulz, an analyst at research firm StorageIO, said Brocade's move to expand its offerings is not surprising, given its problems and the state of the industry.

"I'm not surprised in the least that Brocade is looking to shift their business," he said. "They cannot survive in the current and future market being 99 percent hardware."

But Brocade's survival prospects are good, Schulz added, although "there are storm clouds." "They have the name, the installed base, [the resellers] and hopefully enough cash to get things cleaned up and headed in the right direction," he said.

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