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Brocade Reports $591M 3Q Revenue Up 7% YoY

Brocade (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended July 30, 2016. These results include approximately two months of financial results from Ruckus Wireless, which was acquired on May 27, 2016. Brocade reported third quarter revenue of $591 million, up 7% year-over-year and up 13% quarter-over-quarter. The Company reported GAAP diluted earnings per share (EPS) of $0.02, down from $0.21 in Q3 2015 and from $0.11 in Q2 2016. The year-over-year and sequential declines in GAAP EPS were primarily the result of acquisition-related items, including the lower gross margin associated with acquired inventory and deferred revenue, acquisition and integration costs, and increases in the amortization of intangible assets and stock-based compensation. These items were partially offset by the favorable resolution of a tax audit. Non-GAAP diluted EPS was $0.21 for Q3 2016, down 21% year-over-year and down 2% quarter-over-quarter. The year-over-year decline in non-GAAP EPS was primarily due to the acquisition-related purchase accounting adjustments, unfavorable revenue mix, and higher operating expenses.

"Against the backdrop of a mixed macro environment, we posted solid results, with total revenue at the high end of our outlook range," said Lloyd Carney, CEO of Brocade. "During Q3, we also continued the momentum of new product innovations across our portfolio, building a solid foundation for business growth and expansion of our addressable markets. Furthermore, with the successful completion of our acquisition of Ruckus Wireless in the quarter, we are pleased to welcome this talented and committed team to the Brocade family. Our combined strengths open up new opportunities and distinguish Brocade as a pure-play networking company for the digital transformation era." Highlights:

On May 27, 2016, Brocade completed the acquisition of Ruckus Wireless, Inc., enhancing Brocade's position as a pure-play networking company with solutions spanning from the heart of the data center to the wireless network edge.
SAN product revenue of $282 million was down 9% year-over-year. The year-over-year decline was primarily the result of lower Fibre Channel director sales, which decreased 23%, partially offset by fixed-configuration switch sales which increased 3%. Sequentially, SAN product revenue decreased 5%, with directors declining 20%, partially offset by fixed-configuration and embedded switch sales growing 7% and 8%, respectively. The year-over-year and sequential declines in our SAN director revenue were primarily the result of a longer time to closure for many large deals, while the improvement in our switch revenue was primarily due to pull-through demand from all-flash array deployments. Overall, the decline in our SAN product revenue is consistent with commentary from many of our OEM partners regarding the weaker storage demand environment.
During the quarter, Brocade launched the Brocade X6 Director, the industry's first Gen 6 Fibre Channel director for mission-critical storage connectivity. This highly reliable, high-performance, low-latency solution is specifically designed for all-flash data centers. It extends the company's leadership in offering the industry's most innovative and widely deployed Fibre Channel storage networking solutions.
IP Networking product revenue of $209 million, including $73 million of product revenue from Ruckus Wireless, was up 36% year-over-year. The increase was due to the acquisition of Ruckus Wireless, partially offset by lower U.S. federal revenue, which was down 26% year-over-year, primarily due to the timing of large orders. Sequentially, IP Networking product revenue increased 59% due primarily to the inclusion of Ruckus revenue.
Brocade Communications Systems Inc