UPDATE 2-Brocade profit beats estimates, shares rise

(Adds outlook, CEO interview, share rise, byline)

By Sinead Carew

NEW YORK Aug 13 (Reuters) - Brocade Communications Systems Inc (BRCD.O) posted a higher-than-expected quarterly profit on strong sales of its data-storage network equipment, sending its shares up 2.6 percent.

Brocade forecast revenue to increase further in the current quarter on demand from corporate customers for data storage products despite economic uncertainties. But the company said earnings would be flat to down from the July quarter as the company invests in new products.

"Revenue guidance was good. Earnings guidance could have been better but it's coming from a conservative management team," said Pacific Crest Securities analyst Brent Bracelin, adding that it was crucial for Brocade to develop new products.

Brocade typically beats its own financial forecasts, he said, noting that the company had taken market share from Cisco Systems Inc (CSCO.O) in the recent quarter.

Brocade, which plans to buy Foundry Networks Inc FDRY.O, made a profit of $20.3 million, or 5 cents a share, for its fiscal third quarter ended July 26, up from $10.7 million, or 3 cents a share, a year earlier.

Before charges such as legal and merger integration costs, Brocade earned 16 cents a share, compared with the average analyst forecast for 14 cents, according to Reuters Estimates.

Revenue rose 11.7 percent to $365.7 million, well above Wall Street expectations for $352 million.

Chief Executive Mike Klayko told Reuters the company's better-than-expected performance was due to new products.

"It's hard to gauge demand all the time whenever you bring something new to market. It's very pleasant when you actually exceed some of your own targets," he said in a phone interview.

Klayko expects the economic environment to remain challenging until 2009, but he said Brocade was relatively well insulated against economic weakness as companies always need storage products to cope with heavy electronic data loads.

"Can you name one industry, one geography, one sector where data doesn't grow? Everything is obviously at risk .. but we're fairly resilient," he said.

Pacific Crest's Bracelin added that Brocade was able to boost revenue and gain market share in the third quarter without giving up too much in product prices.

"They were able to grow sequentially in a quarter that's typically down. Pricing looks stable and they're taking share." he said.

Brocade said average selling prices fell in the low-single digit percentage range from its fiscal second quarter, when it had posted revenue of $354.9 million.

The company forecast fiscal fourth quarter net earnings per share of 5 cents to 6 cents per share on revenue of $375 million to $385 million.

Excluding unusual items, Brocade forecast earnings per share of 15 cents to 16 cents a share, compared to the average analysts estimate of 16 cents on revenue of $373.5 million, according to Reuters Estimates.

Brocade shares were up 19 cents at $7.42 in morning trade on Nasdaq. (Editing by Steve Orlofsky and Derek Caney)