Brocade (BRCD): Cheap and Easy?

Yes, this is truly a time of “unusual uncertainty” as the usually cool-as-a-cucumber Cisco CEO John Chambers stated in early August and caused ripples in the world of technology.

Data storage maker Brocade, which makes SAN equipment, Ethernet switches, IP routers, and other networking for business and government (like Cisco), was not immune. The stock continued to decline after a brief rally. Currently, BRCD is selling near its 52-week low of $4.64.

In its latest earnings statement, Brocade met expectations of $0.13 (non-GAAP) per share on a 2.2 percent increase in revenue over the prior year. The company reported GAAP earnings of $0.05 for the quarter. Here are the important metrics from the company website.

Mike Klayko, CEO, summarized performance for the quarter this way:

“In terms of business segments, we performed better-than-expected in storage area networking (SAN) with switch revenue growing double digits sequentially in what is typically a seasonally challenging quarter. Our overall Ethernet business was slightly down sequentially primarily due to softness in Japan and our Federal business, which was down 16% from a strong performance in Q2, while up 15% year-over-year.”

BROCADE COMM SYS (NASDAQ: BRCD)

Comments: A 2 percent increase in revenue is not all that much to celebrate, but the company has been experiencing some growing pains since its acquisition of Foundry Networks over a year ago. The balance sheet looks much better this year. On the other hand, gross margin and operating margin continue to decline and the company expects pricing pressures to continue. Still, speculation about BRCD as an easy takeover target could be fueling the recent uptick in stock price. Volume, however, is weak. The company is currently selling at about book value and looks cheap.  BRCD’s strategy to capitalize on virtualization (the virtual data center) could be a hot ticket for the company providing they continue to develop new markets and distribution channels — takeover target or not.

Disclosure: No positions