Brocade CEO to resign, profit beats estimates

Thu Aug 16, 2012 5:58pm EDT

(Reuters) - Network storage equipment maker Brocade Communication Systems Inc's third-quarter results beat Wall Street estimates, boosted by a 13 percent rise in storage equipment sales, and the company said its chief executive intends to resign.

Shares of the company rose 11 percent after the market-topping results but lost all of their gains on news of the CEO's resignation.

A faltering recovery in the United States and weakness in Europe has hit network equipment makers as telecom service providers, their biggest customers, cut spending and delay purchases of new equipment.

Cisco Systems Inc's Chief Executive John Chambers, whose comments are highly regarded in the tech industry, said on Wednesday that many of its customers continued to be hit by the global economic slowdown and he expects CEOs to remain conservative in their IT spending and hiring.

Brocade on Thursday said Chief Executive Michael Klayko intends to resign once a successor is identified.

The board has formed a search committee to find Klayko's replacement and Klayko will continue to serve as the CEO during the search period, Brocade said in a statement

Net income rose to $43.3 million, or 9 cents per share, in the third quarter, from $2 million, or breakeven on a per share basis, a year earlier.

Excluding items, the company, which supplies its products through EMC Corp, IBM and Hewlett-Packard, earned 14 cents per share.

Revenue rose 10 percent to $555.3 million.

Storage business revenue, which contributes about 70 percent to the total revenue, rose 13 percent to $377.6 million.

Analysts on average had expected earnings before items of 12 cents per share, on revenue of $536.6 million, according to Thomson Reuters I/B/E/S.

Brocade's shares, which have risen 8 percent in the last three months, have outperformed the broader Dow Jones Telecommunication Equipment Index, which has risen 4 percent.

(Reporting by Siddharth Cavale, Additional reporting by Aditya Kodalamahanty; Editing by Supriya Kurane)

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