22/08-05   -   Pressmeddelande

Brocade reports third quarter of fiscal 2005 results

Receives Filing Extension Notice From Nasdaq.

SAN JOSE, Calif.—August 18, 2005—Brocade Communications Systems, Inc. (Brocade®)


(Nasdaq: BRCDE) today reported financial results for its third quarter of fiscal year 2005 (Q3 05), which ended July 30, 2005. Net revenues for Q3 05 were $122.3 million, consistent with the Company’s preliminary results announced on August 2, 2005. Revenues for the quarter decreased 16 percent from $144.8 million reported in the second quarter of fiscal year 2005 (Q2 05) and 19 percent from $150.0 million reported in the third quarter of fiscal year 2004 (Q3 04).

Company sell-through, a measurement of OEM and channel partner sales to end-users, was $143.2 million for the third quarter, slightly higher than the Company’s preliminary estimate of $141 to $142 million. The Company’s management refers to sell-through information to make decisions regarding operational performance including planning and forecasting of future periods.

Non-GAAP net income for Q3 05 was $2.8 million, or $0.01 per share basic and diluted, as compared to non-GAAP net income for Q2 05 of $19.1 million, or $0.07 per share basic and diluted, and non-GAAP net income for Q3 04 of $10.4 million, or $0.04 per share basic and diluted. Non-GAAP net income for Q3 05 excludes in-process research and development expense related to the acquisition of Therion Software Corporation (Therion), stock-based compensation expenses, deferred stock compensation expense related to the acquisitions of Rhapsody Networks, Inc. (Rhapsody) and Therion, costs associated with the ongoing internal review and SEC investigation, and a gain on disposition of a strategic investment. Non-GAAP net income for Q2 05 excludes net stock-based compensation benefits, gains related to repurchases of convertible subordinated debt, gain on disposition of marketable investment, deferred stock compensation expense related to the acquisition of Rhapsody Networks, Inc. (Rhapsody), a reduction of previously recorded restructuring costs, ongoing costs associated with the internal review and SEC investigation, and severance expense included in general and administrative expenses. Non-GAAP net income for Q3 04 excludes net stock-based compensation expense (benefit), deferred stock compensation expense related to the acquisition of Rhapsody, gains related to repurchases of convertible subordinated debt, and gains on disposition of strategic investments. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

Reporting on a GAAP basis, net loss for Q3 05 was $8.6 million, or $(0.03) per share basic and diluted. This compares to GAAP net income for Q2 05 of $20.8 million, or $0.08 per share basic and diluted, and GAAP net income for Q3 04 of $13.4 to $13.8 million, or $0.05 per share basic and diluted. The Q3 04 results include an expected increase to non-cash stock compensation expense in the range of $0.2 million to $0.7 million in connection with the restatement announced on May 16, 2005.

The financial amounts reported in this press release, as well as the tables contained herein, represent management’s best estimates of the impact of expected adjustments. The Company’s estimates of anticipated adjustments are preliminary and subject to change until the internal review being conducted by Brocade’s Audit Committee has been completed.

During the third quarter, the number of weeks of inventory of switches and directors held by Brocade OEM partners decreased by nearly two weeks. The Company previously stated that it expected OEM inventory of its products to decrease approximately one week in each of the third and fourth fiscal quarters of 2005, due to its 4Gbit product transition. The higher than expected reduction in OEM inventory during the third quarter relates to the faster than expected ramp of 4Gbit technology.

“Demand for our new 4Gbit products is strong and we remain very optimistic about the 4Gbit product transition across our entire SilkWorm family," said Michael Klayko, Brocade Chief Executive Officer. “Our customers continue to validate that we have a leading edge product offering and vision for the enterprise that addresses both current and developing requirements, and that we are aligned with their future direction."

Certain reclassifications have been made to prior year balances in order to conform to the current year presentation.

Q3 05 Financial Highlights

- Q3 05 cash flow from operations was $2.8 million, compared to $48.5 million in Q2 05 and $18.0 million in Q3 04.

- Cash and investments, net of the Company’s convertible debt as of the end of Q3 05 was $454.9 million compared to $467.8 million as of the end of Q2 05.

- Day sales outstanding in accounts receivable were 59 days, compared with 55 days in Q2 05 and 55 days in Q3 04.

- For Q3 05, three customers, EMC, HP, and IBM, each accounted for 10 percent or more of total revenues and in total 67 percent of total revenues.

- As of July 30, 2005, the Company had 1,121 employees, compared with 1,065 employees as of April 30, 2005 and 1,075 employees as of July 31, 2004.

Q3 05 Business Highlights
During the quarter, Brocade and its business partners made several news announcements illustrating the Company´s deployment of new platforms, expansion of its offerings into new segments of the IT market, and industry recognition of the Company´s market leading products. Announcements included:

- EMC detailed plans to roll-out its Invista storage network-based virtualization solution, with availability on the Brocade SilkWorm Fabric Application Platform in the third quarter of calendar 2005.

- A Brocade 16-port embedded SAN switch module is now available for seamless integration of SAN connectivity with Intel’s Enterprise Blade Servers.

- Continuing the migration of its SAN infrastructure product line to next-generation, 4 Gbit/sec technology, Brocade announced OEM release of the new SilkWorm 48000 256-port Director and SilkWorm 200E entry-level 8 to 16-port SAN switch on May 31. To date, Brocade OEM partners that have announced general availability of these new products include IBM and Silicon Graphics.

- Introduction of the Brocade Tapestry™ family of application infrastructure solutions, including the industry’s highest performance Wide Area File Services (WAFS) solution, and a new solution, Tapestry Application Resource Manager (ARM) for rapid, automated provisioning and activation of servers, software, and related application resources.

- Launch of expanded Brocade Professional Services and Support offerings, to supplement partner and customer expertise and resources in designing, installing, operating, and supporting shared storage infrastructures.

- Recognition of the Brocade SilkWorm Multiprotocol Router as the Most Valuable Product at Storage World 2005, awarded by the Association of Storage Network Professionals and InfoStor Magazine.

NASDAQ Listing Update
As disclosed previously, the Company received a written staff Determination Notice from the Nasdaq Stock Market stating that the Company is not in compliance with Nasdaq Market Place Rule 4310(c)(14) and is therefore subject to potential delisting. On June 17, 2005, the Company requested a hearing before the Nasdaq Listing Qualifications Panel and on July 21, the Company presented its plan to regain compliance in the short term and maintain compliance over the long term. On August 18, 2005, the Nasdaq Panel granted a conditional extension until September 30, 2005 for the Company to file its 10-Qs for the quarters ended April 30, 2005 and July 30, 2005 and all restatements. There can be no assurance that the Company will be able to file the requisite reports prior to September 30, 2005 or that Nasdaq will grant any additional extension if necessary.

Conference Call
Brocade will host a conference call on Thursday, August 18, 2005 at 2:00 p.m. PT (5:00 p.m. ET) to discuss its third quarter of fiscal year 2005 results. The call will be audio webcast live via the Internet at www.brocade.com/investors. A telephone replay of the conference call will be available approximately two hours after the conference call concludes or 5:00 p.m. PT (8:00 p.m. ET). To access the telephone replay, dial (800) 642-1687 or (706) 645-9291, passcode: 8335114. A replay conference call will also be available via webcast at www.brocade.com/investors for twelve months.

Non-GAAP Information
The non-GAAP, formerly pro forma, information provided in this press release is a supplement to, and not a substitute for, our financial results presented in accordance with GAAP. The non-GAAP results exclude certain expenses and income to provide what we believe is a more complete understanding of our underlying operational results and trends. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain gains, including the gain related to repurchases of our convertible subordinated debt, gain from the disposition of marketable investment and gain from disposition of strategic investment, and certain costs or benefits, including stock-based compensation expense (benefit), certain severance expense, certain expenses relating to our acquisitions of Rhapsody and Therion, including in-process research and development expense, internal review and SEC investigation costs, and the restructuring of business operations, that we believe are not indicative of our core operating results. The associated tax effects of the non-GAAP adjustments represent a pro rata adjustment to the GAAP income tax provision (benefit). Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting of future periods. Brocade management refers to these non-GAAP financial measures in making decisions regarding operational performance and to facilitate internal comparisons to historical operating results and to competitors’ operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

Cautionary Statement
This press release contains forward-looking statements, including statements regarding the Company´s financial results for the third quarter of fiscal 2005, the impact of the Company’s restatement on its financial results, customer and overall market acceptance of the Company´s 4Gbit products and other product offerings, the transition to 4Gbit/sec products from 2Gbit/sec products, and the Company’s product strategy and leadership. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties, which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, adjustments resulting from the quarter close process and review by the Company´s independent auditors of the financial results for the third quarter; market acceptance of the Company´s new 4Gbit/sec products and other product offerings, including the rate of customer adoption of such products; the on-going internal investigation and SEC investigation, which may result in further changes to the Company´s historical financial results and accounting practices; the Company´s ability to manage inventory levels and distribution channels through the product line transition; the effect of competition, including pricing pressure; the effect of changes in IT spending levels and the Company´s ability to anticipate future OEM and end-user product needs or to accurately forecast end-user demand; dependence on limited number of OEM partners; the Company´s ability to manage its business effectively in a rapidly evolving market; and the possibility that the Company may be unable to regain compliance with Nasdaq listing requirements prior to September 30, 2005 or obtain any additional extension if necessary, in which case the Company´s common stock may be delisted from the Nasdaq National Market. These and other risks are set forth in more detail in the section entitled "Risk Factors" under "Item 2. Management´s Discussion and Analysis of Financial Condition and Results of Operations" in the Company´s quarterly report on Form 10-Q for the quarter ended January 29, 2005. Brocade assumes no obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.


About Brocade Communications Systems, Inc.
Brocade delivers the industry´s leading platforms and solutions for intelligently connecting, managing, and optimizing IT resources in shared storage environments. The world´s premier systems, server, and storage providers offer the Brocade SilkWorm family of fabric switches and software as the foundation for SAN solutions in organizations of all sizes. In addition, the Brocade Tapestry(TM) family of application infrastructure solutions extends the ability to proactively manage and optimize application and information resources across the enterprise. Using Brocade solutions, organizations are better positioned to reduce cost, manage complexity, and satisfy business compliance requirements through optimized use and management of their application infrastructures.

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Brocade, the B weave logo and SilkWorm are registered trademarks of Brocade Communications Systems, Inc. or its subsidiaries in the United States or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners. All products, plans, and dates are subject to change without notice.