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

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

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!