Brocade Communications Systems, Inc. (BRCD)’s Looking for M&A Love Ahead of Earnings

Page 1 of 2

A balance sheet is the heart of every corporation. Any time I come across a business with lots of cash but below-average growth, I begin to play matchmaker. I’ll take that company and put in “column A” and try to pair it up with companies in “column B” that I think can produce growth. But this doesn’t always work. Hewlett-Packard Company (NYSE:HPQ)‘s botched hookup with Autonomy serves as a perfect example.

Nonetheless, column B remains filled with candidates. And on that list is Brocade Communications Systems, Inc. (NASDAQ:BRCD) , one of the best stories that no one has ever heard of. Granted, the stock has not gone anywhere is almost a year. However, where Brocade lacks in flair, the company has more than made up for it in execution. And with its Q1 earnings report due on Valentine’s Day, this company deserves love from investors and potential suitors.

Brocade Communications Systems, Inc. (NASDAQ:BRCD)

What is Brocade, really?
I will concede that this has not been an easy company to figure out. While Brocade has produced revenue growth and solid free cash flow for eight consecutive quarters, the top line has not overwhelmed the Street, as evident by 5% revenue growth in Q4. Consequently, Brocade doesn’t get much press, not to the extent that it can excite investors. Plus it’s tough to be bullish when Brocade competes with some serious heavyweights in its core business.

Fairly or unfairly, this is a company that has to be great just to be considered good. And “great” has been a challenge. Although Brocade has made meaningful improvements recently, that enterprise revenue continues to trend lower year over year means Brocade has been unable to seize market share against the likes of Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR) in enterprise data centers.

Besides, in software-defined networking, or SDN, it will require major leaps forward for Brocade to become a true threat to rivals like Oracle Corporation (NASDAQ:ORCL) and VMware, Inc. (NYSE:VMW) which recently spent $1.26 billion to acquire Nicira, a start-up with strong technology in the SDN market. However, it’s encouraging that VMware and Brocade have recently formed a partnership. But it will be a while before Brocade’s Ethernet fabric strategy is embraced as a solid foundation in SDN deployments.

Out with uncertainty, in with speculation
In the meantime, however, Brocade has removed a great deal of uncertainty now that the company has installed Lloyd Carney as new CEO, replacing Mike Klayko, who said in August that he would be leaving. Then again, this move has brought about a rash of speculation. As noted above, Brocade has been a mainstay in my column B acquisition bin as solid takeover candidate.

Maybe it’s fate. But it’s certainly interesting to note that the last two companies that Carney has led, he’s sold. The first was Micromuse, which International Business Machines Corp. (NYSE:IBM) acquired in 2005. And then he took over Xsigo Systems, which was bought by Oracle last year. All of these activities suggest that Carney has plenty of M&A experience. Add in Brocade’s desire to be sold, and he’s the perfect hire — or in this case, matchmaker.

What’s more, that Carney once served as chief operating officer at Juniper, he has plenty of experience, and probably a host of potential suitors already in mind. The question, however, is which company makes the best fit? Plus, what exactly can Brocade offer, say, to a company like Cisco Systems, Inc. (NASDAQ:CSCO), which has ample cash and has been spending in Brocade’s direction?

Plenty to offer with little baggage
In the most recent quarter, Brocade made a good case for itself. Amid a poor macro environment, revenue grew 4% sequentially and 5% year over year to $578.3 million, easily beating the consensus estimate of $566 million. The company was helped by better-than-expected performance in product revenue, which advanced 7% year over year and 5% sequentially.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Jobs that May Exist in the Future

The Absolute Best States to Shop in the US

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!