The SAN switch and director maker promised to take the lead market share in every SAN sector this year, and to achieve cost cutting targets a year ahead of an earlier target.

Late last year Brocade said that it was not expecting revenue growth to pick up until spring this year. Its latest quarterly results showed only slight sequential revenue growth, and its guidance was for flat to mild growth in the current quarter.

But Brocade CEO Greg Reyes said: I’m sticking to my guns. We’re going to be number one in every sector coming out of this year, basing his confidence on the very recent and long overdue refresh of Brocade’s product line-up, and on forthcoming hardware.

The company also said that its Rhapsody-based smart switch may now not make it to market running third-party applications until early 2005 – over a year later than first forecast when Brocade bought start-up Rhapsody late in 2002.

Nevertheless Brocade has decided to pay out $7m to former Rhapsody shareholders, and not contest the earn-out clause that was part of the $175m share-swap purchase. We determined that it was better to settle than to litigate, Reyes said. Brocade may not want to draw attention to the merits or de-merits of the Rhapsody purchase.

Asked about a rumor that the majority of the layoffs were of former Rhapsody staff, Reyes insisted: That couldn’t be further from the truth, and at least managed to list three Rhapsody employees still working for Brocade as its chiefs of sales, marketing and software engineering.

The earn-out provision with the VCs is a different thing, Reyes said.

Last year’s price war in the SAN market forced Brocade to focus strongly on reducing its costs, and it has now brought forward by twelve months its target to reach a 15% to 20% non-GAAP operating margins.

In March it said it would do that by the end of calendar 2005, but yesterday it said it will do so this year. The statement prompted much questioning by apparently skeptical financial analysts during the earnings call. Brocade said it based its confidence partly on the fact that it reduced its operating expenses by around 15% last year, despite buying Rhapsody and its 100-odd staff.

During the last fiscal quarter Brocade laid off 110 staff, with 70 of the redundancies only being announced yesterday. Brocade said that despite its new margin target, it is not planning any more lay-offs. I want to be clear on this, Reyes said.

For the first time publicly the company said that for quite some time almost all of its manufacturing has been completed in China. Previously the company had outsourced manufacturing to both Chinese and US contractors, it said.

SAN switch and director prices are stabilizing, Brocade said, although its average selling prices fell by mid single-digit percentages during its last fiscal, as it did in the previous three months. Revenue was buoyed by a 5% increase in the number of ports sold.

On the product front, Brocade said its recent introduction of FICON support saw it win 100 new customers in the last quarter. It predicted that as in other sectors, it will displace McData as the current number one in FICON market this year. It would not say how many FICON sales it makes, but executives have previously estimated the sector to account for around 20% of the market.

In this quarter OEMs will bring to market the first version of the Rhapsody-developed Fabric Application Platform, which will not run third-party software, but will run Brocade’s routing software that allows SAN islands to be linked together, but prevents errors being propagated between the two.

Cisco offers similar technology, but Brocade claims technical advantages, including greater flexibility of port allocation to FC or IP.

The recent product launches from Brocade include low-end hardware that neutralizes the successful challenge that McData Corp had posed to Brocade’s dominance in this sector. It also included a version of Brocade’s flagship director which doubled its port count to 128 ports.

That number is still smaller than the 140 ports offered by the biggest box from McData, which is promising to ship an even larger device this year. Brocade argued that unlike McData’s forthcoming device, its new Silkworm 24000 runs in the same chassis as the older 12000, saving customers the costs of a forklift upgrade of an entire box

The technically-driven vendor lock-in of the SAN market means that vendors do not have to present entirely equivalent products to prevent their installed bases from defecting to rivals. Brocade marketing vice president Tom Buiocchi said: Put a handful of 24000s together, connect them with our router and you can get suprising scalability.

For the its fiscal second quarter ended May 1 2004, Brocade reported revenue of $146m, up 11% year-on-year and virtually flat sequentially. The latest quarter was a week shorter than the previous quarter, reducing revenue by around 3%, Brocade said, and adding to the effect of product launches which delayed sales. GAAP net loss was $2m, compared to $146m last year. Non-GAAP net income was $8m compared to a non-GAAP net loss last year of $11m.

Brocade said it expects revenue of $147m to $152m in its current fiscal quarter, with EPS of $0.04 to $0.05.