Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Bruce Brown who wrote (26344)	6/14/2000 1:21:00 PM
From: slacker711	Respond to of 54805

Thought this might be of interest....SSB interpretation of the Brocade/Cisco announcement. smithbarneyresearch.com BRCD: Feedback from Brocade's Analyst Day and Cisco Announcement Salomon Smith Barney Wednesday, June 14, 2000 -------------------------------------------------------------------------------- --SUMMARY:--BROCADE Communications--Computer Storage * In our view, Brocade's analyst day was an all around success. * We believe the Cisco/Brocade partnership will contribute to the continuation of Brocade's robust revenues growth. Although we do not believe Cisco (CSCO-$65-1M) will significantly contribute to Brocade's top line in the near term, we believe the announcement will act as an endorsement and,therefore, a catalyst to increase the adoption rate of storage networking across the industry. * We are increasing our F2000 revenue estimate from $273.9 million to $281.7 million and F2001 from $524.2 million to $540.0 million. * We are increasing our F2000 EPS estimate from $0.47 to $0.48 and raising our F2001 EPS estimate from $0.81 to $0.83. We are maintaining our 1H rating and $190 price target. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 10/99 EPS $(0.02)A $(0.01)A $0.01A $0.03A $0.02A Previous 10/00 EPS $0.06A $0.11A $0.13E $0.17E $0.47E Current 10/00 EPS $0.06A $0.11A $0.14E $0.17E $0.48E Previous 10/01 EPS $N/A $N/A $N/A $N/A $0.81E Current 10/01 EPS $N/A $N/A $N/A $N/A $0.83E Previous 10/02 EPS $N/A $N/A $N/A $N/A $N/A Current 10/02 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (06/13/00)....:$145.75 P/E Ratio 10/00.....:303.6x Target Price..:$190.00 Prior:No Change P/E Ratio 10/01.....:175.6x Proj.5yr EPS Grth...:50.0% Return on Eqty 99...:N/A% Book Value/Shr(00)..:1.00 LT Debt-to-Capital(a)0% Dividend............:$N/A Revenue (00)........:231.90mil Yield...............:N/A% Shares Outstanding..:108.5mil Convertible.........:No Mkt. Capitalization.:15813.9mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: -- OPINION:------------------------------------------------------------------ Raising Our Estimates Based On Cisco Partnership ------------------------------------------------ We believe the Cisco/Brocade partnership will contribute to the continuation of Brocade's robust revenues growth. Brocade grew revenues at a 45% sequential growth rate last quarter (F2Q00) reaching $62.1 million and at a 42% sequential growth rate in the previous quarter (F1Q00) reaching $42.7 million. Although we do not believe Cisco will significantly contribute to Brocade's top line in the near term, we believe the announcement will act as an endorsement and, therefore, a catalyst to increase the adoption rate of storage networking across the industry. Although the company did not give a financial overview, we believe Brocade's quarter is tracking ahead of schedule. Based on our belief in the strength of Brocade's quarter and in light of recent events, we are increasing our estimates. We are raising our F3Q00 revenue estimate from $77.1 million to $80.9 million, representing 30.4% sequential growth, and increasing our F4Q00 revenue estimate from $92.1 million to $96.0 million, representing 18.7% sequential growth. We are increasing our F2000 revenue estimate from $273.9 million to $281.7 million. We are also increasing our F2001 revenue estimate from $524.2 million to $540.0 million, representing 92% yoy growth. We are increasing our F3Q00 and F4Q00 EPS estimates from $0.13 and $0.17 to $0.14 and $0.17, respectively. We are increasing our F2000 EPS estimate from $0.47 to $0.48 and raising our F2001 EPS estimate from $0.81 to $0.83, representing 73% EPS yoy growth in F2001 even after factoring in a higher tax rate in F2001 (32% in F2001 vs 21% in F2000). Valuation --------- We are maintaining our 1H rating and $190 price target. Overview -------- Brocade's first analyst day was very well attended and we were impressed with the number of people that hung on till the end. Presentations lasted from 8:30am thru 3:00pm, then drinks, and then dinner till 8:00pm. We were very impressed with Brocade's supporters and announcements. All presentations were well received. All-Star Cast Of Presentations ------------------------------ Very rarely have we seen such an all-star cast of companies endorsing such an emerging product and technology as vocally as they have at Brocade's analyst meeting. Presenters Cisco Systems: James Richardson, SVP Enterprise Line of Business Compaq Computer: Howard Elias, VP and GM, Storage Products Bus Unit Veritas: Mark Leslie, Chairman and CEO Storage Networks: Mike Tardif, SVP, Engineering and Strategy ONI Systems: Hugh Martin, President and CEO The Cisco Partnership Announcement ---------------------------------- Brocade announced a partnership with Cisco to interconnect Cisco's Catalyst 6000 product family of high performance multilayer switches with Brocade's Silkworm product family of Fibre Channel switches. The interconnection will occur through the integration of a Fibre Channel based interface, designed by Brocade and built by Cisco, located within a Cisco switch, providing switch-to-switch connectivity. Cisco will pay Brocade a "license fee" on a per-port-shipped basis. The combined solution is based on encapsulating Fibre Channel's protocol, FCP, over TCP stacked with IP through Ethernet to achieve non-blocking OC3 performance; Cisco will continue to increase the speed of transmission with future generations of the interface. Cisco feels that testing should be completed and implementations should begin by the first calendar quarter of 2001. Cisco will also offer DWDM connectivity for Brocade to traverse Metropolitan Area Networks (MANs) and Wide Area Networks (WANs). (Note: ONI was also at Brocade's meeting, is a partner with Brocade, and provides Brocade with DWDM. In addition, Brocade is an investor in ONI.) We believe Cisco's partnership with Brocade will be the catalyst we have been anticipating that will drive more networking companies to partner with Brocade. Such companies could include Nortel, Lucent, Juniper, Extreme and many others. We believe this partnership provides a very high level of validation for both Brocade's leadership in storage networking and the benefits of Fibre Channel networking technology. In our view, the simple announcement of this partnership will dramatically increase the adoption rate of storage networking. Dataquest currently projects storage networking industry revenues will grow from $1.4 billion in 2000 to $3.5 billion in 2003, representing an 62% CAGR. Dataquest projects revenues will reach $3.4 billion in 2002. In light of the Cisco/Brocade partnership, in our opinion Dataquest's 2002 industry revenue projection could be achieved 6-12 months earlier than anticipated. We believe that industry projections will soon be upwardly revised. Cisco's Storage Networking Strategy ----------------------------------- Although we feel Cisco will continue to invest in the development of various IP based solutions in the hopes of creating a Fibre Channel alternative, we believe it will take at least 2-5 years. We believe an IP based storage solution will target the low-end of the storage network industry (i.e. small business market and file level data in the Enterprise market). Cisco's 3 Prong Approach To Storage Networking: 1) Offer SAN interconnections through Dense Wave Division Multiplexing (DWDM) 2a) Internally develop an IP based storage networking alternative. 2b) Invest in the externally developed of IP based storage networking alternatives. 3) Partner with Brocade to interconnect Fribre Channel SANs through IP networks. Product Road Map ---------------- Brocade provided unusual insight into its product road map which included the development of 64 and 128 port Directors (which is an Enterprise class switch) based on Brocade's third (next) generation 2 Gbps ASICs (note: the new ASICs will be backward and forward compatible). We believe Brocade will introduce its Director with limited availability in the Oct-Dec time frame and offer general availability early in calendar 2001. Brocade will also be releasing an Application Programming Interface (API) at the end of the month so that customers can benefit from various software applications, from companies such as Veritas and Highground. Anything Else? -------------- We believe Sun Microsystems (SUNW-90.06-2M) is likely to partner with Brocade in the near term. In our view, Sun can no longer hold out from offering a Brocade based solution if it wants to be a serious provider of storage area networks (SANs). We believe the reason that both EMC and Cisco have partnered with Brocade is a result of customer pressure; in other words, customers have demanded Brocade solutions. We believe Sun is receiving similar pressures from customers and, therefore, will soon sign on as a Brocade partner. Stats From SNI -------------- SNI has deployed over 500 Brocade's switches. SNI develops Fibre Channel based SANs at customer locations in order to most efficiently interconnect customers to SNI's S-POPs (Storage-Points Of Presence).