BRCD » Topics » Increased market competition may lead to reduced sales, margins, profits and market share.

These excerpts taken from the BRCD 10-K filed Dec 15, 2008.
Increased market competition may lead to reduced sales, margins, profits and market share.
 
The data center networking markets continue to be very competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter these markets. Increased competition in the past has resulted in greater pricing pressure and reduced sales, margins, profits and market share. For example, Brocade expects to experience increased competition in future periods as other companies develop and introduce 8 Gigabit or other products that are intended to compete with Brocade’s new 8 Gigabit products. Moreover, new competitive products could be based on existing technologies or new technologies that may or may not be compatible with Brocade’s storage network technology and new data center architecture. While new technologies such as Fibre Channel over Ethernet and non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand, or iSCSI represent future opportunities for further establishing or expanding Brocade’s market presence, they also could be disruptive to Brocade’s business if Brocade is not able to develop products that compete effectively.
 
In addition to competing technology solutions, Brocade faces significant competition from providers of Fibre Channel switching products for interconnecting servers and storage. These principal competitors include Cisco Systems, Inc. and QLogic Corporation. Brocade also faces other competitors in markets adjacent to the SAN market, such as Cisco and F5 Networks, Inc. in the File Management market and QLogic and Emulex in the Server Connectivity or HBA market. New competitors are likely to emerge from the existing Ethernet networking companies in the market as the FCoE standard becomes finalized and is introduced to the market. These competitors are likely to use emerging technologies and alternate routes-to-market (outside of Brocade’s traditional OEM channels) to compete with Brocade. In addition, Brocade’s OEM partners, who also have relationships with some of Brocade’s current competitors, could become new competitors by developing and introducing products that compete with Brocade’s product offerings, by choosing to sell Brocade’s competitors’ products instead of Brocade’s products, or by offering preferred pricing or promotions on Brocade’s competitors’ products. Competitive pressure will likely intensify as Brocade’s industry experiences further consolidation in connection with acquisitions by Brocade, its competitors and its OEM partners.
 
Some of Brocade’s competitors have longer operating histories and significantly greater human, financial and capital resources than Brocade does. Particularly as Brocade enters new adjacent markets, Brocade may face competitors with well-established market share and customer relationships. Brocade’s competitors could adopt more aggressive pricing policies than Brocade. Brocade believes that competition based on price may become more aggressive than it has traditionally experienced. Brocade’s competitors could also devote greater resources to the development, promotion and sale of their products than Brocade may be able to support and, as a result, be able to respond more quickly to changes in customer or market requirements. Brocade’s failure to successfully compete in the market would harm Brocade’s business and financial results.
 
Brocade’s competitors may also put pressure on Brocade’s distribution model of selling products to customers through OEM solution providers by focusing a large number of sales personnel on end-user customers or by entering into strategic partnerships. For example, one of Brocade’s competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby Brocade’s competitor resells the storage systems of its partner in exchange for sales by the partner of Brocade’s competitor’s products. Such strategic partnerships, if successful, may influence Brocade to change Brocade’s traditional distribution model.


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Increased
market competition may lead to reduced sales, margins, profits
and market share.



 



The data center networking markets continue to be very
competitive as new products, services and technologies are
introduced by existing competitors and as new competitors enter
these markets. Increased competition in the past has resulted in
greater pricing pressure and reduced sales, margins, profits and
market share. For example, Brocade expects to experience
increased competition in future periods as other companies
develop and introduce 8 Gigabit or other products that are
intended to compete with Brocade’s new 8 Gigabit products.
Moreover, new competitive products could be based on existing
technologies or new technologies that may or may not be
compatible with Brocade’s storage network technology and
new data center architecture. While new technologies such as
Fibre Channel over Ethernet and non-Fibre Channel based emerging
products utilizing Gigabit Ethernet, 10 Gigabit Ethernet,
InfiniBand, or iSCSI represent future opportunities for further
establishing or expanding Brocade’s market presence, they
also could be disruptive to Brocade’s business if Brocade
is not able to develop products that compete effectively.


 



In addition to competing technology solutions, Brocade faces
significant competition from providers of Fibre Channel
switching products for interconnecting servers and storage.
These principal competitors include Cisco Systems, Inc. and
QLogic Corporation. Brocade also faces other competitors in
markets adjacent to the SAN market, such as Cisco and F5
Networks, Inc. in the File Management market and QLogic and
Emulex in the Server Connectivity or HBA market. New competitors
are likely to emerge from the existing Ethernet networking
companies in the market as the FCoE standard becomes finalized
and is introduced to the market. These competitors are likely to
use emerging technologies and alternate routes-to-market
(outside of Brocade’s traditional OEM channels) to compete
with Brocade. In addition, Brocade’s OEM partners, who also
have relationships with some of Brocade’s current
competitors, could become new competitors by developing and
introducing products that compete with Brocade’s product
offerings, by choosing to sell Brocade’s competitors’
products instead of Brocade’s products, or by offering
preferred pricing or promotions on Brocade’s
competitors’ products. Competitive pressure will likely
intensify as Brocade’s industry experiences further
consolidation in connection with acquisitions by Brocade, its
competitors and its OEM partners.


 



Some of Brocade’s competitors have longer operating
histories and significantly greater human, financial and capital
resources than Brocade does. Particularly as Brocade enters new
adjacent markets, Brocade may face competitors with
well-established market share and customer relationships.
Brocade’s competitors could adopt more aggressive pricing
policies than Brocade. Brocade believes that competition based
on price may become more aggressive than it has traditionally
experienced. Brocade’s competitors could also devote
greater resources to the development, promotion and sale of
their products than Brocade may be able to support and, as a
result, be able to respond more quickly to changes in customer
or market requirements. Brocade’s failure to successfully
compete in the market would harm Brocade’s business and
financial results.


 



Brocade’s competitors may also put pressure on
Brocade’s distribution model of selling products to
customers through OEM solution providers by focusing a large
number of sales personnel on end-user customers or by entering
into strategic partnerships. For example, one of Brocade’s
competitors has formed a strategic partnership with a provider
of network storage systems, which includes an agreement whereby
Brocade’s competitor resells the storage systems of its
partner in exchange for sales by the partner of Brocade’s
competitor’s products. Such strategic partnerships, if
successful, may influence Brocade to change Brocade’s
traditional distribution model.





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Brocade
depends on a limited number of OEM partners for a substantial
portion of Brocade’s revenues and the loss of any of these
OEM partners or a decrease in their purchases could
significantly reduce Brocade’s revenues and negatively
affect Brocade’s financial results.



 



Brocade depends on recurring purchases from a limited number of
large OEM partners for a substantial portion of its revenues. As
a result, these large OEM partners have a significant influence
on Brocade’s quarterly and annual financial results. For
fiscal years 2008, 2007 and 2006, the same three customers each
represented ten percent or more of Brocade’s total net
revenues for a combined total of 65%, 68% and 73%, respectively.
Brocade’s agreements with its OEM partners are typically
cancelable, non-exclusive, have no minimum purchase requirements
and have no specific timing requirements for purchases.
Brocade’s OEM partners could also elect to reduce, or
rebalance, the amount they purchase from Brocade and increase
the amount purchased from Brocade’s competitors. Brocade
anticipates that its revenues and operating results will
continue to depend on sales to a relatively small number of OEM
partners. The loss of any one significant OEM partner, or a
decrease in the level of sales to any one significant OEM
partner, or unsuccessful quarterly negotiation on key terms,
conditions or timing of purchase orders placed during a quarter,
would likely cause serious harm to Brocade’s business and
financial results.


 



In addition, some of Brocade’s OEM partners purchase
Brocade’s products for their inventories in anticipation of
customer demand. These OEM partners make decisions to purchase
inventory based on a variety of factors, including their product
qualification cycles and their expectations of end customer
demand, which may be affected by seasonality and their internal
supply management objectives. Others require that Brocade
maintain inventories of Brocade’s products in hubs adjacent
to their manufacturing facilities and purchase Brocade’s
products only as necessary to fulfill immediate customer demand.
If more of Brocade’s OEM partners transition to a hub
model, form partnerships, alliances or agreements with other
companies that divert business away from Brocade, or otherwise
change their business practices, their ordering patterns may
become less predictable. Consequently, changes in ordering
patterns may affect both the timing and volatility of
Brocade’s reported revenues. The timing of sales to
Brocade’s OEM partners and consequently the timing and
volatility of Brocade’s reported revenues, may be further
negatively affected by the product introduction schedules of
Brocade’s OEM partners.


 



Brocade’s OEM partners evaluate and qualify Brocade’s
products for a limited time period before they begin to market
and sell them. Assisting Brocade’s OEM partners through the
evaluation process requires significant sales, marketing and
engineering management efforts on Brocade’s part,
particularly if Brocade’s products are being qualified with
multiple distribution partners at the same time. In addition,
once Brocade’s products have been qualified, its customer
agreements have no minimum purchase commitments. Brocade may not
be able to effectively maintain or expand its distribution
channels, manage distribution relationships successfully, or
market its products through distribution partners. Brocade must
continually assess, anticipate and respond to the needs of its
distribution partners and their customers, and ensure that its
products integrate with their solutions. Brocade’s failure
to successfully manage its distribution relationships or the
failure of its distribution partners to sell Brocade’s
products could reduce Brocade’s revenues significantly. In
addition, Brocade’s ability to respond to the needs of its
distribution partners in the future may depend on third-parties
producing complementary products and applications for
Brocade’s products. If Brocade fails to respond
successfully to the needs of these groups, its business and
financial results could be harmed.


 




This excerpt taken from the BRCD 10-K filed Jan 9, 2007.
Increased market competition may lead to reduced sales, margins, profits and market share.
 
The storage network and data management markets are becoming increasingly more competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter the market. Increased competition in the past has resulted in greater pricing pressure, and reduced sales, margins, profits and market share. For example, Brocade expects to experience increased competition in future periods as other companies gain market traction with recently released 4 Gbit products that are intended to compete with Brocade’s 4 Gbit products. Moreover, new competitive products could be based on existing technologies or new technologies that may or may not be compatible with Brocade’s storage network technology. Competitive products include, but are not limited to, non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand, and Internet Small Computer System Interface (“iSCSI”).
 
Currently, Brocade believes that it principally faces competition from providers of Fibre Channel switching products for interconnecting servers and storage. These competitors include Cisco Systems, McDATA (with which Brocade will continue to be a competitor until Brocade’s pending acquisition of McDATA closes) and QLogic Corporation. In addition, Brocade’s OEM partners, who also have relationships with some of Brocade’s current competitors, could become new competitors by developing and introducing products that compete with Brocade’s product offerings, by choosing to sell Brocade’s competitors’ products instead of Brocade’s products, or by offering preferred pricing or promotions on Brocade’s competitors’ products. Competitive pressure will likely intensify as Brocade’s industry experiences further consolidation in connection with mergers by Brocade, its competitors and its OEM partners.
 
Some of Brocade’s competitors have longer operating histories and significantly greater human, financial and capital resources than Brocade does. Brocade’s competitors could adopt more aggressive pricing policies than Brocade. Brocade believes that competition based on price may become more aggressive than it has traditionally experienced. Brocade’s competitors could also devote greater resources to the development, promotion, and sale of their products than Brocade may be able to support and, as a result, be able to respond more quickly to changes in customer or market requirements. Brocade’s failure to successfully compete in the market would harm Brocade’s business and financial results.


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Brocade’s competitors may also put pressure on Brocade’s distribution model of selling products to customers through OEM solution providers by focusing a large number of sales personnel on end-user customers or by entering into strategic partnerships. For example, one of Brocade’s competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby Brocade’s competitor resells the storage systems of its partner in exchange for sales by the partner of Brocade’s competitor’s products. Such strategic partnerships, if successful, may influence Brocade to change Brocade’s traditional distribution model.
 
This excerpt taken from the BRCD 10-K filed Jan 19, 2006.
Increased market competition may lead to reduced sales, margins, profits and market share.
 
The SAN market is becoming increasingly more competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter the market. Increased competition in the past has resulted in greater pricing pressure, and reduced sales, margins, profits and market share. Moreover, new competitive products could be based on existing technologies or new technologies that may or may not be compatible with our SAN technology. Competitive products include, but are not limited to, non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand, and iSCSI (Internet Small Computer System Interface).
 
Currently, we believe that we principally face competition from providers of Fibre Channel switching products for interconnecting servers and storage. These competitors include Cisco Systems, McDATA Corporation (which completed its acquisition of Computer Network Technology Corporation (“CNT”) on June 1, 2005) and QLogic Corporation. In addition, our OEM partners, who also have relationships with some of our current competitors, could become new competitors by developing and introducing products competitive with our product offerings, choosing to sell our competitors’ products instead of our products, or offering preferred pricing or promotions on our competitors’ products. Competitive pressure will likely intensify as our industry experiences further consolidation in connection with acquisitions by us, our competitors and our OEM partners.
 
Some of our competitors have longer operating histories and significantly greater human, financial and capital resources than us. Our competitors could adopt more aggressive pricing policies than us. We believe that competition based on price may become more aggressive than we have traditionally experienced. Our competitors could also devote greater resources to the development, promotion, and sale of their products than we may be able to support and, as a result, be able to respond more quickly to changes in customer or market requirements. Our failure to successfully compete in the market would harm our business and financial results.
 
Our competitors may also pressure our distribution model of selling products to customers through OEM solution providers by focusing a large number of sales personnel on end-user customers or by entering into strategic partnerships. For example, one of our competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby our competitor resells the storage systems of its partner in exchange for sales by the partner of our competitor’s products. Such strategic partnerships, if successful, may influence us to change our traditional distribution model.
 
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