Brocade Slashes Work Force by 12%

Faced with stale spending in information technology, Brocade
Communications Systems
said it has cut 12 percent of
its work force and that sales should plummet in the first quarter.

The San Jose-based storage fabric switchmaker expects to retain 1,200
employees after the work cuts, which was put into effect to cut back
expenses. Brocade said it expects these and other actions will save the firm
more than $8 million in the first quarter of fiscal 2003.

The company, which announced its earnings in the same week a major research
firm released a report proclaiming 2002 as the worst year to date in the IT
industry, reported net income of $15.8 million, or seven cents a share,
compared with a year-earlier net loss of $53.7 million, or 24 cents a share.

For all of fiscal 2002, the firm had net income of $59.7 million, or 25
cents a share, compared with $2.8 million, or a penny a share, a year
earlier. Revenue increased 9.6% to $562.4 million from $513 million.

“Aligning the company required some difficult decisions, but we believe that
we made the right decisions for the business,” Brocade CEO Grey Reyes said
in a public statement. “With the expense reduction plan that we have
implemented, and the strategic investments that we continue to make in our
business, we believe that we are well positioned as the economy recovers.”

Chief Operating Officer Michael Byrd said he will be stepping down at the
end of the fiscal first quarter to spend more time with his family.

Brocade’s news comes a month after it warned expected earnings of seven
cents a share on revenue of $152 million to $153 million. The company’s
August forecast was for Q4 earnings of 10 cents a share on sales of $160
million to $165 million.

News for Brocade isn’t all sour, however. The concern snapped up
rival Rhapsody Networks for $175 million in stock earlier this month,
further fortifying its position as the market leader for SAN fabric
switches — devices that devices that route a path or circuit for sending
data to its next destination.

Considering the harsh economic climate, Brocade should, perhaps, be pleased
it had the wherewithal to purchase such a worthy competitor. IDC said in a
conference call this week that the worldwide IT industry suffered its
largest decline ever in 2002, with a growth rate of negative 2.3 percent.

Worse yet, one of the biggest market shrinkages occurred in the storage
sector, which IDC said decreased by 10.6 percent in 2002 and is not expected
to recover to its 2001 size until after 2006.

Going forward, IDC expects the IT industry, which it values at $875 billion
dollars, to recover from this low point with a 2003 growth rate of more than
5 percent.

“Overall, the IT industry has contracted by roughly 3% over the past two
years,” said John Gantz, chief research officer at IDC. “This is in sharp
contrast to the average annual growth rate of 12% enjoyed by the industry
over the past 20 years. Looking forward to 2003, we expect to see spending
on IT and communications resume, driving a worldwide growth rate of 5.8% for
the industry.”

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