Struggling Brocade eyes an extreme makeover
Executive departures no problem
By Lucas Mearian, Computerworld | Published: 08:00, 03 February 2006
Dealing with revenue losses and the resignations of its CEO and CFO in the last year, Fibre Channel switch maker, Brocade Communications Systems, has said it wants to shift its business model from an all-hardware product line and general support vendor to a company offering a greater mix of software and services.
Brocade claims more than 2 million servers are attached to its storage switches, which direct data traffic on more than 100,000 storage area networks (SAN). By adding software and services, it would be following in the footsteps of leading storage vendors such as EMC and Network Appliance.
Recently, Brocade's vice-president of worldwide marketing, Tom Buiocchi, and its chief technology officer, Dan Crain, sat down to discuss the company's technology and marketing road map, as well as to address a recent exodus of executive staff.
Crain said the company wanted to increase revenue from its software and services sales from 1 per cent today to 10 percent over the next couple of years. Without offering specifics, Buiocchi and Crain said some of the new storage management software would be developed internally; the rest would come from partnerships, and much of it would probably be used on Brocade's Tapestry intelligent switch platform.
The products would be unveiled over the next year, Buiocchi said.
Some users weren't fired up about the company's planned shift to more software and services.
Director of MIS at Paxson Communications, Scott Saunders, has been a Brocade customer for six years and currently owns eight Brocade Silkworm switches that connect a SAN made up by EMC and Dell storage subsystems.
Saunders said he was largely oblivious to Brocade's internal problems because his SAN was serviced by EMC and Dell. But he wasn't interested in purchasing software or services from a switch vendor.
"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."
Vice-president of infrastructure engineering at Union Bank of California in San Francisco, Rick Curry, said he wouldn't probably purchase storage management software from Brocade.
"I'd rather align with a storage management solution that is more vendor neutral," he said. "What I would find appealing is software running in the fabric that could off-load more costly server or storage processor cycles. That said, the licensing strategy of these products, as well as the technical maturity/functionality, would also have to be competitive."
An analyst with research firm StorageIO, Greg Schulz, said Brocade's Tapestry was more of an umbrella for several technologies or a marketing name such as HDS TagmaStore, HP StorageWorks, IBM TotalStorage, Sun StorageTek and so forth.
"They need to evolve from re-branding and step out and expand and find new applications for the intelligent switch platform," he said.
Neither Crain nor Buiocchi would comment directly on personnel departures, but did say that the resignations had not effected company morale. "We lost a few people who were more on the administration, financial and human resources side and some staff personnel, but we haven't lost any operational folks," Buiocchi said. "The guys who sit around the table and run the actual business are the same guys today."
Buiocchi also said that the company has just completed its financial filings for 2005 with no restatements, which it had to do last year, and for the first time with full Sarbanes-Oxley compliance.
He said Brocade's financial missteps happened in 1999 and 2001 and hopefully that was now behind the company.
"You have to separate the historical audits and investigations from how the company is performing today," Buiocchi said.
Brocade has suffered a steady revenue decline over the past four quarters, resulting in an overall $US22 million drop in revenue from 2004 to 2005. It has also seen key personnel resign, including the February 2005 resignation of CEO Greg Reyes, who left after the company had to restate several of its financial earnings reports, and the departure in December of CFO Tony Canova. The company also still faces an investigation by the US Securities and Exchange Commission for questionable accounting practices regarding stock options.
Curry said he was not been concerned about the departures at Brocade because he thought the company still had a strong position in the market.
"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," Curry said.
Schulz said that in many ways Brocade experienced problems similar to those faced by another storage high flyer that ran aground, Legato Software, which was purchased by EMC in 2003.
"I'm not surprised in the least that Brocade is looking to shift their business," Schulz said. "They have to. They cannot survive in the current and future market being 99 per cent hardware.
"The good news is that while there are storm clouds, they have the name, the install base, OEMs and hopefully enough cash to get things cleaned up and headed in the right direction."
Buiocchi said while Brocade had experience internal leadership turmoil, its engineering and product management teams were executing.
"What happened in the company's operation in 2005?" Buiocchi said. "We cranked out the industry's only top-to-bottom 4Gbit/s [Fibre Channel switch] product line. We announced six blade wins with server OEMs. We enhanced our director product and we launched this entire eTapestry and service thing. So we are executing extremely well."