BRCD

Brocade Communications Systems, Inc. (BRCD)

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Brocade Communications Systems (BRCD)

F3Q10 (Qtr End 07/31/2010) Earnings Call

August 18, 2010 5:30 pm ET

Executives

Rob Eggers - VP, IR

Mike Klayko - CEO

Richard Deranleau - CFO

John McHugh - VP and CMO

Dave Stevens - CTO

Ian Whiting - SVP of Worldwide Sales.

Analysts

Brian Marshall - Gleacher & Company

Nikos Theodosopoulos - UBS

Ryan Hutchinson - Lazard Capital Markets

Mark Sue - RBC Capital Markets

Aaron Rakers - Stifel Nicolaus

Erik Suppiger - Signal Hill

Munjal Shah - Jefferies & Company

Katie Huberty - Morgan Stanley

Min Park - Goldman Sachs

Kaushik Roy - Wedbush

Jayson Noland - Robert Baird

John Slack - Citigroup

Presentation

Operator

Good day ladies and gentlemen, and thank you for standing by. Welcome to the Q3 2010 Brocade Communications Systems earnings and question-and-answer session conference call. (Operator Instructions) And now, I would like to turn the program over to our speaker Rob Eggers, Vice President of Investor Relations with Brocade.

Rob Eggers

Good afternoon, and welcome to Brocade's Q3 earnings question-and-answer conference call. By now you should have seen our press release and prepared comments, which are available on www.brcd.com. The press release was also distributed by First Call and Business Wire, and furnished to the SEC.

Before we take questions, investors should note our comments today may include forward-looking statements regarding Brocade's financial results, cash and debt positions, plans, market opportunities and business outlook, which are only predictions and involve risks and uncertainties, such that actual results may vary significantly. These and other risks are set forth in more detail on our Form 10-Q for the fiscal quarter ended May 1, 2010, and our Form 10-K for the fiscal year ended October 31, 2009. These forward-looking statements reflect beliefs, assumptions, outlook, estimates and predictions as of today, and Brocade expressly assumes no obligation to update any such forward-looking statements.

In addition, this presentation may include various third-party estimates regarding the total available market and other measures, which do not necessarily reflect the view of Brocade. Further, Brocade does not guarantee the accuracy or reliability of such information or forecast.

This presentation includes non-GAAP financial measures and most directly comparable GAAP information, and a reconciliation between the non-GAAP and GAAP figures are provided in our Q3 2010 press release, which has been furnished to the SEC on Form 8-K and in our slide presentation and prepared comments on www.brcd.com.

Here to take your questions are Mike Klayko, Brocade's CEO; Richard Deranleau, CFO; John McHugh, VP and CMO; Dave Stevens, CTO; and Ian Whiting, Senior Vice President of Worldwide Sales.

I will now turn the call over to CEO, Mike Klayko. Mike?

Mike Klayko

Thank you, Rob. As Rob mentioned, please refer to the prepared comments and the slides for full details of our Q3 financial results. But I did want to take a few minutes to summarize some of the key themes that developed in the quarter. Overall, this is solid performance in what is seasonally a challenging quarter. We executed well in our SAN business, which was up 4% sequentially; again, what is normally our toughest quarter.

The SAN Switch business did very well, up 20% sequentially. All this supports something we've been saying that fiber channel is a technology that is vibrant and has a long productive future ahead of it. And the fact is, customers want a reliable datacenter networking technology to support IT initiatives such as virtualization and fiber channel continues to be a right answer for many of them.

Moving on to our Ethernet business, there are many indicators from Q3 that give us confidence that we are on the right track, and that our strategies and investments are working. For example, we're pleased with the fact that we have completed the bulk of our hiring goals in our sales organization, which is having a positive impact on our ability to win new customers.

In Q3 we won more net new Ethernet accounts which generated more revenue than any quarter since the Foundry acquisition. Our Ethernet innovation strategy is also on track. There is no better indication of this than the enthusiastic positive response we generated at Technology Day where we launched the Brocade One architecture and unveiled some compelling next generation Ethernet technologies, such as Brocade VCS, which is designed to make networks simpler to use, and highly tuned for virtualized datacenters.

In fact, we have already started to take early orders for Brocade VCS switches, a clear signal that there is a strong customer interest for this technology, and this is just the beginning of our Ethernet innovation cycle. Our partners are taking notice as well. The momentum behind our business is fueled in large part by Brocade One, and our Ethernet innovation is improving our ability to recruit and sign top-tier global distributors and resellers.

This is resulting in more of our Ethernet business going through this important channel, which is a critical success factor in our overall growth strategy. There's no question that all companies today face challenges, and we recognize the ones that lie ahead of us, some of which are out of our control. But we continue to focus on the ones within our control, and we continue to gain confidence from our customers and partners telling us that our innovation, sales and marketing strategies are tightly aligned with their imperatives, which bodes well for our long-term success.

With that, operator, I'd like to open up this conference call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll take our first question from Brian Marshall with Gleacher & Company.

Brian Marshall - Gleacher & Company

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