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Brocade to Wall Street: IP networking sales are down but customers love VCS

In Brocade’s latest quarterly earnings call with Wall Street analysts, executives revealed that its VCS data center fabric and VDX switches are winning new customers and expanding their footprint in existing accounts. Also, VCS fabric customers are telling Brocade that the technology will help them migrate to software defined networking and network virtualization in data centers.

According to a transcript of the earnings call, CTO David Stevens said sales of the VDX switching line are accelerating and expanding. In the first year the technology was on the market, Brocade saw mostly pilot projects, but “now we’re seeing a fair number of those accounts scale out into broad production use of the technology. In fact, some of the customers [are] hitting the limits of” the original VDX architecture.

Brocade announced the VDX 8770 chassis switch this year to increase the scale of the VCS fabric.  The company now has 800 VDX customers.

“Over time, we’re going to see more scale-out production use of the technology, both… within [the] installed base where we sold the product to date but also as we gain new name accounts going forward,” Stevens said.

In its final quarter for fiscal 2012, Brocade reported $578 million in revenue, a 5% bump year-over-year.  It was a record quarter for the company, driven mostly by a robust sales in storage area network (SAN) sales. Its IP networking business declined by 3%, pushed down by routing. Switching actually grew by 5%.

During the earnings call one financial analyst, Mark Sue of RBC Capital Markets, pushed Brocade’s executives on the idea that it should focus its Ethernet business in the data center, saying “the business might benefit from some focus… Is there some thought of driving that deeper into the data center and perhaps less in the campus and less in the enterprise just because the market doesn’t seem to be growing that margin? It is very crowded.”

Jason Nolet, VP of Data Center Networking Group, said Brocade has invested substantially in its VCS fabric and its VDX switches. Investments in campus networking aren’t taking away from that data center focus, he added. Stevens, the outgoing CTO, added that investments in campus networking are relatively small compared to the investments the company has made in developing VCS and service provider networking.

Brocade started refreshing its campus networking products a year ago with the ICX 6610 series. Next year it will release HyperEdge, a campus LAN management technology that establishes a single management IP address where admins can make changes to an entire network through a single CLI session.

Stevens added that customers are starting to engage with Brocade about the need for software defined networking technology, especially for implementing network virtualization.

“I think it’s starting to gain a lot of interest,” he said. “When you think about adding another layer to the network with network virtualization, you’re going to add logical networks through tunnel technology. You’re actually adding to the overall administrative burden of that environment, because the physical infrastructure doesn’t go away. It still needs to be scaled, maintained and managed to upgrade, et cetera.”

Customers are telling Brocade that the VCS fabric’s ability to “simplify and reduce the operational overhead of that underlying transport as a result of the very high level of automation and efficiency that we’ve built into the fabric” allows them to focus more on how they’re going to deploy and run network virtualization, Stevens said.

“It also prevents them from just doubling up their operational overhead as a result of having adding that additional virtualization layer to the network environment,” he added.

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