Brocade's announcement of 100G Ethernet routers and modules comes at a time when the company has had uneven results in Ethernet and IP since acquiring Foundry Networks in 2008 for $2.6 billion.
In its first quarter of fiscal 2010, sales of the Brocade's Ethernet/IP products came in well short of what the company and Wall Street expected. Brocade acknowledged that its OEM sales strategy, which includes data center stalwarts IBM and Dell, was not taking hold and promised a realignment.
Sales rebounded impressively in the second quarter, rising 34 per cent from the first. But it dipped again in the third -- down 5 per cent from Q2 -- as the rest of the industry grew or remained flat.
Brocade attributed the Q3 results to softness in the federal market and in Japan. But the company also signed on 290 new Ethernet/IP customers in the quarter, and they contributed the highest per quarter revenue from the 1,000 new accounts Brocade's signed on since acquiring Foundry.
Brocade cautions not to read too much into the quarterly numbers.
"Quarterly aberrations are almost always reset in the following quarter," says Brocade CMO John McHugh. "We saw a little bit of that between Q2 and Q3. You have to look at an aggregated two or three quarter view to get a real feel for market change."
McHugh notes though that during Q3, some of the accounts Brocade sold to two and three quarters ago are beginning to repurchase. That means they were satisfied with their initial purchase and are coming back for more, McHugh notes.
And half of those new accounts in Q3 were landed through OEMs while resellers snagged the other half. That's some of the go-to-market balance McHugh was striving for in Ethernet/IP after the Q1 misfire.
But some big OEM partners, specifically IBM, which also resells Juniper EX Ethernet switches, remain relatively dormant in pushing Brocade Ethernet/IP gear to market. Brocade CEO Mike Klayko acknowledged "we still have much to do in terms of growing the Ethernet business through IBM" during the Q3 financial results conference call.
"We're substantially below our expected results coming form that relationship," McHugh said. "We, like everybody else, has struggled to get the level of engagement and grassroots change in behavior from the IBM Global Services organization. The ability of that organization to influence and change customer buying behavior from one vendor to another has not met our expectations.
"We continue to look at ways where we can materially change the relationship with IBM to make the business model work better," McHugh says. "There is business flowing through those relationships but at this point in time we don't have anything new to announce. But I think we continue to invest and try to expand that relationship."
Asked of Brocade was losing opportunities to Juniper through the IBM channel, McHugh said it was "status quo."
"I'm not sure Juniper's recognizing much better results than we had in selling traditional enterprise networking through that channel," he says.
Meanwhile, Brocade has some new switches coming later this year and early next under its Brocade One converged data center umbrella. Those products could impact Brocade's Ethernet/IP business in one of two ways: customers waiting for them could buy them up right away; or the new products could slow sales of new and existing gear while customers evaluate them.
McHugh believes sales to service providers and enterprise campus environments will not be impacted because the new Brocade One switches are specifically targeted at the virtualized data center. He feels the new switches will "augment, not undermine" existing sales.
As for sustaining quarter-over-quarter growth in Ethernet/IP, McHugh compared Brocade's situation to a lake:
"When you drain a lake, the bottom's really bumpy," he says. "The lake is really smooth when it's full, you get the water out of it and it's got incredible contours and topology. We're unfortunately right now in a lake that's just not full enough. The business is not at the level of critical mass it needs to be to start having normal persistence. Repeat buying from customers, repeat buying from channel… those are the kind of things that ultimately flood the bottom of the lake bed."
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