8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 17, 2011

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-25601	77-0409517
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

130 Holger Way

San Jose, CA 95134

(Address, including zip code, of principal executive offices)

(408) 333-8000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 17, 2011, Brocade Communications Systems, Inc. (the “Company”) issued a press release regarding financial results for the first quarter ended January 29, 2011. The Company also posted on its website (www.BRCD.com) slides with accompanying prepared remarks regarding such financial results and forward-looking statements, including statements relating to the Company’s estimated financial results of the second quarter of fiscal year 2011. Copies of the press release and slides with accompanying prepared remarks by the Company are attached as Exhibits 99.1 and 99.2, respectively, and the information in Exhibits 99.1 and 99.2 is incorporated herein by reference.

The information in Item 2.02 and Item 9.01 in this Current Report on Form 8-K and the exhibits attached hereto shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description of Document
99.1	Press release, dated February 17, 2011, regarding financial results of Brocade Communications Systems, Inc. for the first quarter ended January 29, 2011.
99.2	Slides with accompanying prepared remarks of Brocade Communications Systems, Inc., dated February 17, 2011, regarding financial results of the first quarter ended January 29, 2011 and forward-looking statements, including statements relating to the Company’s estimated financial results of the second quarter of fiscal year 2011.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	BROCADE COMMUNICATIONS SYSTEMS, INC.
Dated: February 17, 2011	By:	/S/    RICHARD DERANLEAU
		Richard Deranleau
		Chief Financial Officer and Vice President, Finance

EX-99.1

Exhibit 99.1

BROCADE CONTACTS
Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com	Investor Relations Robert Eggers Tel: 408-333-8797 reggers@brocade.com

Brocade Reports Q1 FY2011 Results

Strong performance in Storage Area Networking and International Ethernet Business

SAN JOSE, Calif., Feb. 17, 2011 — Brocade^® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 29, 2011. Brocade recorded quarterly revenues of $546 million, representing an increase of 1.2% year-over-year and resulting in diluted earnings per share (EPS) of $0.06 on a GAAP basis and $0.12 on a non-GAAP basis.

In the quarter, Brocade saw product revenue growth of nearly 5% sequentially in its storage networking business driven by strong Director product revenues and record Server product revenues. Brocade also saw its international Ethernet product revenue grow 30% sequentially led by its EMEA and Asia Pacific geographies, which helped offset the expected softness in Federal spending. Brocade exceeded its expectations for EPS and operating margin in the quarter.

“We are pleased with the results of Q1 and our ability to execute to our FY2011 Playbook,” said Michael Klayko, CEO of Brocade. “The industry’s first Ethernet fabric solutions that we began delivering in Q1 have been very well received by customers and the industry. These solutions will help enable our customers to rapidly migrate to virtualized data centers and serve as the building blocks for their cloud-based foundational architecture.”

In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q1 results and Fiscal Q2 outlook at www.brcd.com. Brocade will host a live webcast conference call to answer questions from investors and analysts today at 2:30 p.m. Pacific time. Questions may also be submitted in advance to ir@brocade.com.

Other Q1 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information

	Q1 2011			Q4 2010			Q1 2010
Revenue	$	546M		$	550M		$	539M
GAAP net income	$	27M		$	23M		$	51M
Non-GAAP net income	$	61M		$	66M		$	94M
GAAP EPS – diluted	$	0.06		$	0.05		$	0.11
Non-GAAP EPS – diluted	$	0.12		$	0.14		$	0.19
Non-GAAP gross margin (1)		62.0	%		62.3	%		64.9	%
Non-GAAP operating margin		17.1	%		20.4	%		26.0	%
Adjusted EBITDA (2)	$	114M		$	128M		$	155M
Cash provided by operations	$	118M		$	106M		$	69M

• Q1 effective GAAP tax rate was (26.6)%; non-GAAP effective tax rate was 15.9%.

• Q1 total Storage Area Networking (SAN) port shipments were approximately 1.2 million.

Please see important note of explanation on Non-GAAP measures below, including a detailed reconciliation between GAAP and Non-GAAP information in the tables included herein.

Brocade

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000 F. 408.333.8101

www.brocade.com

	Q1 2011			Q4 2010			Q1 2010
As a % of total revenues
OEM revenues		66	%		61	%		71	%
Channel/Direct revenues		34	%		39	%		29	%
10% or greater customer revenues		47	%		44	%		54	%
Domestic revenues		59	%		65	%		63	%
International revenues		41	%		35	%		37	%
Data Storage Revenues		61	%		57	%		65	%
Ethernet Products Revenues		23	%		26	%		18	%
Global Services Revenue		16	%		17	%		17	%
Ethernet Business Revenues (3)		28	%		31	%		23	%
As a % of Ethernet Business Revenues (3):
Enterprise, including Federal		74	%		75	%		80	%
Federal only		13	%		23	%		13	%
Service Provider		26	%		25	%		20	%
	Q1 2011			Q4 2010			Q1 2010
Cash, cash equivalents and investments	$	416M		$	336M		$	501M
Deferred revenues	$	265M		$	251M		$	236M
Capital expenditures	$	23M		$	46M		$	47M
Total debt, net of discount	$	892M		$	930M		$	1,176M
Days sales outstanding		46 days			54 days			47 days
Employees at end of period		4,721			4,651			4,114

1) Q1 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses.

2) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.

3) Ethernet Business revenues include product and support revenues.

Page 2 of 8

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. In evaluating Brocade’s performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.

Management believes that non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade’s comparative operating performance both from period to period, and to its competitors’ operating results. Management also believes these non-GAAP financial measures help indicate Brocade’s baseline performance before gains, losses or charges that are considered by management to be outside ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes these non-GAAP financial measures, when read in conjunction with Brocade’s GAAP financials, provide useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results;

• the ability to make more meaningful comparisons of Brocade’s operating performance against industry and competitor companies;

• the ability to better identify trends in Brocade’s underlying business and to perform related trend analysis;

• a better understanding of how management plans and measures Brocade’s underlying business; and

• an easier way to compare Brocade’s most recent results of operations against investor and analyst financial models.

Management excludes certain gains or losses and benefits or costs in determining non-GAAP net income that are the result of infrequent events or arise outside the ordinary course of Brocade’s continuing operations. Management believes that it is appropriate to evaluate Brocade’s operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include: (i) legal fees associated with certain pre-acquisition litigation, (ii) legal fees associated with indemnification obligations and other related costs, net, (iii) acquisition and integration costs, (iv) loss on sale of property, and (v) interest expense related to adoption of new standard relating to convertible debt instruments.

Management also excludes the following non-cash charges in determining non-GAAP net income (i) stock-based compensation expense and (ii) amortization of purchased intangible assets. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, management believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for Brocade’s newly acquired and long-held businesses.

Finally, management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.

Limitations These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that impact the Company. Management compensates for these limitations by also considering Brocade’s GAAP results. The non-GAAP financial measures that Brocade uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP, such as operating income, net income and net income per share, and should not be considered measurements of Brocade’s liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s FY2011 Playbook and customer adoption of Brocade’s Ethernet fabric products and technologies.

Page 3 of 8

These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, changes in IT spending levels in one or more of our target markets and geographical regions, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 30, 2010. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

About Brocade

Brocade^® (Nasdaq: BRCD) networking solutions help the world’s leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)

# # #

Brocade, the B-wing symbol, BigIron, DCFM, DCX, Fabric OS, FastIron, IronView, NetIron, SAN Health, ServerIron, TurboIron, and Wingspan are registered trademarks, and Brocade Assurance, Brocade NET Health, Brocade One, Extraordinary Networks, MyBrocade, VCS, and VDX are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned are or may be trademarks or service marks of their respective owners.

^© 2011 Brocade Communications Systems, Inc. All Rights Reserved.

Page 4 of 8

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	Jan 29, 2011			Jan 30, 2010
Net revenues
Product	$	457,290		$	449,086
Service		88,727			90,406
Total net revenues		546,017			539,492
Cost of revenues (1)
Product (1)		177,616			165,776
Service (1)		47,257			44,578
Total cost of revenues		224,873			210,354
Gross margin		321,144			329,138
Operating expenses:
Research and development		91,408			90,081
Sales and marketing (1)		152,667			122,061
General and administrative		18,090			16,239
Legal fees associated with indemnification obligations and other related costs, net		124			301
Amortization of intangible assets		16,190			17,052
Acquisition and integration costs		—			204
Total operating expenses		278,479			245,938
Income from operations		42,665			83,200
Interest and other income (loss), net		349			72
Interest expense		(21,546	)		(22,073	)
Loss on sale of investments and property, net		(6	)		(8,828	)
Income before income tax provision (benefit)		21,462			52,371
Income tax provision (benefit)		(5,717	)		1,276
Net income	$	27,179		$	51,095
Net income per share – basic	$	0.06		$	0.12
Net income per share – diluted	$	0.06		$	0.11
Shares used in per share calculation – basic		465,108			439,080
Shares used in per share calculation – diluted		491,166			484,262

(1) Q1 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses.

Page 5 of 8

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	Jan 29, 2011			Oct 30, 2010
Assets
Current assets:
Cash and cash equivalents	$	414,183		$	333,984
Short-term investments		2,020			1,998
Total cash, cash equivalents and short-term investments		416,203			335,982
Accounts receivable, net		277,478			329,564
Inventories		85,818			76,808
Deferred tax assets		67,137			67,080
Prepaid expenses and other current assets		64,829			65,017
Total current assets		911,465			874,451
Property and equipment, net		540,438			539,117
Goodwill		1,642,768			1,644,950
Intangible assets, net		313,343			344,000
Non-current deferred tax assets		216,299			203,454
Other assets		47,759			48,203
Total assets	$	3,672,072		$	3,654,175
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	134,615		$	147,130
Accrued employee compensation		86,570			91,688
Deferred revenue		199,310			185,623
Current liabilities associated with facilities lease losses		5,218			5,992
Current portion of capital lease obligations		1,761			1,761
Current portion of term loan		34,323			28,779
Other accrued liabilities		101,166			108,310
Total current liabilities		562,963			569,283
Non-current capital lease obligations, net of current portion		6,351			6,782
Term loan, net of current portion		254,417			297,118
Senior Secured Notes		595,478			595,373
Non-current liabilities associated with facilities lease losses		3,059			3,984
Non-current deferred revenue		66,173			65,242
Non-current income tax liability		63,132			61,421
Other non-current liabilities		8,912			8,671
Total liabilities		1,560,485			1,607,874
Stockholders’ equity:
Common stock		469			461
Additional paid-in capital		2,088,640			2,047,563
Accumulated other comprehensive loss		(5,805	)		(2,827	)
Retained earnings		28,283			1,104
Total stockholders’ equity		2,111,587			2,046,301
Total liabilities and stockholders’ equity	$	3,672,072		$	3,654,175

Page 6 of 8

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended Jan 29, 2011 and Jan 30, 2010

(in thousands)

(unaudited)

	Three Months Ended
	Jan 29, 2011			Jan 30, 2010
Cash flows from operating activities:
Net income	$	27,179		$	51,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,522			51,012
Loss on disposal of property and equipment		176			8,813
Amortization of debt issuance costs and original issue discount		4,729			6,663
Net (gains) losses on investments		(16	)		168
Provision for doubtful accounts receivable and sales allowances		2,428			3,043
Non-cash compensation expense		19,906			21,523
Capitalization of interest cost		—			(3,315	)
Changes in assets and liabilities:
Restricted Cash		—			2
Accounts receivable		49,812			18,104
Inventories		(10,319	)		(601	)
Prepaid expenses and other assets		(3,018	)		4,982
Deferred tax assets		(6	)		—
Accounts payable		(18,582	)		(39,735	)
Accrued employee compensation		(9,416	)		(67,155	)
Deferred revenue		14,617			935
Other accrued liabilities		(10,076	)		16,036
Liabilities associated with facilities lease losses		(1,700	)		(2,463	)
Net cash provided by operating activities		118,236			69,107
Cash flows from investing activities:
Purchases of short-term investments		(25	)		(24	)
Proceeds from maturities and sale of short-term investments		19			1
Proceeds from sale of property		—			30,185
Purchases of property and equipment		(23,395	)		(47,317	)
Net cash used in investing activities		(23,401	)		(17,155	)
Cash flows from financing activities:
Payment of principal related to the term loan		(39,748	)		(506,545	)
Payment of principal related to capital leases		(431	)		—
Proceeds from Senior Secured Notes		—			587,968
Proceeds from issuance of common stock, net		25,477			30,031
Net cash provided by (used in) financing activities		(14,702	)		111,454
Effect of exchange rate fluctuations on cash and cash equivalents		66			(1,016	)
Net increase in cash and cash equivalents		80,199			162,390
Cash and cash equivalents, beginning of period		333,984			334,193
Cash and cash equivalents, end of period	$	414,183		$	496,583

Page 7 of 8

BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	Jan 29, 2011			Jan 30, 2010
Net income on a GAAP basis
Adjustments:	$	27,179		$	51,095
Stock-based compensation expense included in cost of revenues		2,860			2,913
Amortization of intangible assets expense included in cost of revenues		14,466			17,850
Legal fees associated with certain pre-acquisition litigation		77			299
Total gross margin adjustments		17,403			21,062
Legal fees associated with indemnification obligations and other related costs, net		124			301
Stock-based compensation expense included in research and development		4,283			6,183
Stock-based compensation expense included in sales and marketing		8,792			9,700
Stock-based compensation expense included in general and administrative		3,971			2,727
Amortization of intangible assets expense included in operating expenses		16,190			17,052
Acquisition and integration costs		—			204
Total operating expense adjustments		33,360			36,167
Total operating income adjustments		50,763			57,229
Loss on sale of property		—			8,783
Interest expense related to adoption of new standards relating to convertible debt instruments		—			2,142
Income tax effect of adjustments		(17,208	)		(25,239	)
Non-GAAP net income	$	60,734		$	94,010
Non-GAAP net income per share – basic	$	0.13		$	0.21
Non-GAAP net income per share – diluted	$	0.12		$	0.19
Shares used in non-GAAP per share calculation – basic		456,108			439,080
Shares used in non-GAAP per share calculation – diluted		491,166			496,346

See explanation of non-GAAP information included herein.

Page 8 of 8

EX-99.2

Q1 FY 2011 EARNINGS

February 17, 2011

Exhibit 99.2

©

2011 Brocade Communications Systems, Inc.

Page 1 of 41

Prepared comments provided by Rob Eggers, Investor Relations

Thank you for your interest in Brocade’s Q1 Fiscal 2011 earnings presentation, which includes prepared remarks, slides, and a

press release detailing fiscal first quarter 2011 financial results. The press release was issued shortly after 1:00 p.m. Pacific

time on February 17, 2011, via Marketwire. The press release, along with these prepared comments and slides, has been made

available on Brocade’s Investor Relations website at www.brcd.com and has been furnished to the SEC on Form 8-K.

Cautionary Statements and Disclosures

This presentation includes forward-looking statements regarding Brocade’s financial

results, plans and business outlook as well as worldwide SAN, Ethernet and Federal

government IT spending, which are only predictions and involve risks and uncertainties

such that actual results may vary significantly. These and other

risks are set forth in

more detail in our Form 10-K for the fiscal year ended October 30, 2010. These

forward-looking statements reflect beliefs, assumptions, outlook, estimates and

predictions as of today, and Brocade expressly assumes no obligation to update any

such forward-looking statements.

In addition, this presentation includes various third-party estimates regarding the total

available market and other measures, which do not necessarily reflect the views of

Brocade. Further, Brocade does not guarantee the accuracy or reliability of any such

information or forecast.

Certain financial information is presented on a non-GAAP basis. The most directly

comparable GAAP information and a reconciliation between the non-GAAP and GAAP

figures are provided in the accompanying press release, which has been furnished to

the SEC on Form 8-K and posted on Brocade’s website, and is included in the

appendix to this presentation.

Please see risk factors on Form 10-K filed with the SEC

©

2011 Brocade Communications Systems, Inc.

Page 2 of  41

Agenda

Prepared comments followed by live Q&A call

Richard Deranleau

CFO

Mike Klayko

CEO

©

2011 Brocade Communications Systems, Inc.

Page 3 of  41

Today’s prepared comments include remarks by Mike Klayko, Brocade’s CEO, regarding the company’s quarterly results, its

strategy and a review of operations, as well as industry trends and market/technology drivers related to its business; and by

Richard Deranleau, Brocade’s CFO, who will provide a financial review.

A live question-and-answer conference call will be webcast beginning at 2:30 p.m. Pacific time on February 17 at www.brcd.com

and will be archived on Brocade’s Investor Relations website for approximately 12 months. Participants are invited to submit

questions via email at ir@brocade.com up to 60 minutes prior to the conference call and to ask live questions during the call.

Fiscal 2011: Q1 Earnings

Mike Klayko, CEO

©

2011 Brocade Communications Systems, Inc.

Page 4 of  41

Prepared comments provided by Mike Klayko, CEO

Q1 Executive Summary

Q1 Results

•

$546M revenues, up 1.2% Yr./Yr.

•

$0.12 non-GAAP EPS* (diluted)

Business Highlights

•

Highest end-user demand for SAN

•

SAN product revenue grew 4.9%

Qtr./Qtr. driven by Director/Server

•

Ethernet product revenue grew

32% Yr./Yr. led by EMEA and APAC

•

Operating cash flows of $118M,

up 11% Qtr./Qtr.

* Note: Non-GAAP, please see GAAP reconciliation in appendix

Quarterly Revenues

$539M

$501M

$504M

$550M

$546M

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

©

2011 Brocade Communications Systems, Inc.

Page 5 of 41

Brocade reported Q1 revenues of $546M and non-GAAP diluted earnings per share (EPS) of $0.12, which exceeded our prior

guidance range of $0.09 to $0.10 for the quarter. Our revenues in the quarter represented a 1.2% increase year-over-year

(Yr./Yr.) and a slight decrease sequentially as expected, following an all-time record revenue quarter in Q4 FY10. 

A highlight in Q1 was our ability to maintain momentum in our Ethernet products revenue, which was up 32% Yr./Yr. fueled by

growth in EMEA and Asia Pacific (APAC) in terms of geographies. In addition, we saw strong traction in the Service Provider and

Enterprise businesses in terms of customer segments.

Another highlight was the performance of our storage area networking (SAN) products revenue, which was up approximately 5%

sequentially. Specifically, we are seeing healthy end-user demand for our SAN products as customers continue to invest

in their

data center networking infrastructures to address IT imperatives

such as server virtualization sprawl and private cloud

initiatives. These dynamics are also having a positive impact in

our Director and Server products businesses. As servers run

more virtual machines, the connection rate to storage increases and the demand for SAN switching increases. In Q1, Brocade

generated its second-highest Director product revenue,  its highest Server product revenue and record sell-through or end-user

demand for its SAN business.

Brocade FY 2011 Playbook

1.

Differentiate through Innovation

2.

Grow the Ethernet Business

3.

Maintain SAN Leadership

4.

Generate More Awareness

5.

Be an Employer of Choice

6.

Grow Top-Line Profitably

©

2011 Brocade Communications Systems, Inc.

Page 6

of  41

Last quarter I discussed our FY 11 Playbook. I will now take a closer look at our Q1 performance according to the FY

11 Playbook fundamentals:

1.

Differentiate through Innovation

2.

Grow the Ethernet Business

3.

Maintain SAN Leadership

4.

Generate More Awareness

5.

Be an Employer of Choice

6.

Grow Top-Line Profitably

1. Differentiate through Innovation

Brocade One

™

Strategy

•

Unmatched simplicity

•

Non-stop networking

•

Application optimization

•

Investment protection

Brocade MLXe

with 100 GbE

Brocade VDX

™

6720

Data Center Switches with

Brocade VCS technology

BROCADE

Brocade One in Action

Brocade One in Action

©

2011 Brocade Communications Systems, Inc.

Page 7 of  41

Brocade introduced the Brocade One™

strategy to help us align our innovation priorities with four key customer imperatives

that we believe are essential for success in IT today: Unmatched

simplicity, non-stop networking, application optimization

and investment protection. Two of the best recent examples of Brocade One “in action”

are the Brocade VDX™

6720 Data

Center Switch powered by Brocade VCS™

technology and the Brocade MLXe

Core Router, which establishes industry

benchmarks for performance, scalability and investment protection for service provider and data center networks. I will

provide a brief progress update on each platform.

“Most Important

Enterprise IT

Product of 2010”

©

2011 Brocade Communications Systems, Inc.

Page 8 of  41

(1)

http://www.cio.gov/documents/25-Point-Implementation-Plan-to-Reform-Federal%20IT.pdf

Award-Winning Brocade VDX 6720/ Brocade VCS Technology:

Brocade VCS technology to enable a new category of data center networks, or Ethernet fabrics, that are purpose-built to

help our customers simplify their network architectures and manage the rampant growth of server virtualization inside of their

data centers. This is a critical technology building block towards highly automated, private cloud architectures that many

customers are evaluating today. 

The initial reception of the Brocade VDX 6720 from customers, industry pundits and other luminaries has been very positive.

Customers who are evaluating an Ethernet fabric solution have told us, “If you are building a cloud environment, you must

start with the assumption that it will need an Ethernet fabric as its foundation”. We are also proud of the fact that CTOEdge

named the Brocade VDX 6720 the “Most Important Enterprise Product for 2010,” pointing out that “this offering heralds a

change in the way we think about managing data centers for years to come.” We also received favorable feedback about

Ethernet fabrics from the CIO of the United States government, Vivek Kundra, as part of a larger discussion on data center

consolidation strategies and cloud computing best practices. These two topics are top-of-mind for Mr. Kundra, as evidenced

by their prominence in his “25 Point Implementation Plan to Reform Federal Information Technology Management”.

In terms of key metrics, Q1 saw Brocade winning some significant deals for the Brocade VDX 6720 at large enterprise

customers in a number of targeted vertical markets; energy, high-tech, media and communications. These customers have

already deployed their Brocade VDX 6720 switches into production environments in high-performance, low-latency top-of-

rack switch configurations with plans to migrate to Ethernet fabric clusters later. These early customers helped the Brocade

VDX 6720 surpass our goals for Q1 in both unit shipments and revenue. In future quarters, we expect to leverage our time-

to-market advantage in this category.  

We designed  the Brocade VDX 6720 Switch and

(1)

©

2011 Brocade Communications Systems, Inc.

Page 9 of  41

        The IP/Ethernet networking world is also dealing with massive scale in

terms of global digital data and private network/Internet traffic growth. The proliferation of connected mobile devices, the

rapid adoption of public cloud computing services, the migration toward next-generation 4G cellular as well as IPv6

technologies are some of the factors driving customers to either upgrade or refresh their service provider and data center

networks today.

The Brocade MLXe Core Router, which was named the “Product of the Year” by Internet Telephony magazine, is designed

to tackle these challenges, offering industry-leading 1/10/100 Gigabit Ethernet (GbE) wire-speed density, high reliability,

and cost-saving operational efficiency for the world’s most demanding networks. 

Award-Winning Brocade MLXe

Core Router:

CERN Accelerates Scientific

Innovation with MLXe

Routers

”

“

—Jean-Michel Jouanigot, Communications 

Systems Group Leader, IT Department, CERN

Excels in one of the world’s most rigorous testing environments

Brocade’s MLXe

was the only product that

met our stringent requirements (we test

prod`ucts

to destruction), and not only

delivers a solution to meet our immediate

needs but also gives us a platform to 100

GbE

when the time is right. I do not see our

appetite for data waning in the future, so

with the addition of the MLXe

in our

environment, I am confident we have a

blueprint for success.

©

2011 Brocade Communications Systems, Inc.

Page 10 of  41

One such example is our Q1 win at CERN, one of the most respected scientific research organizations in the world. CERN is using the

Brocade MLXe

to manage a networking environment that generates more than 15 petabytes

of data every year. Further, we are

extremely proud of this win because the Brocade MLXe

was able to out-perform all other competing solutions in a rigorous testing

process that is recognized as one of the most thorough and demanding in the scientific community.

IPv4 Address Exhaustion

Opportunity for IPv6-certified Brocade MLXe

core routers

Source: American Registry for Internet Numbers

2008

2009

2010

2011

688

654

654

570

537

503

436

436

369

268

235

117

0

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

Feb

Available Free Pool of IPv4 Addresses

from the Internet Assigned Numbers Authority

as of February 3, 2011

The last blocks of

IPv4 addresses were

distributed to each

Regional Internet

Registry on 2/3/11

©

2011 Brocade Communications Systems, Inc.

Page 11 of  41

As customers and the industry make the transition to IPv6 technology, which has garnered significant media attention

recently, the high-performance and reliability of the Brocade MLXe

will be vital. Industry experts say that IP addresses

available through IPv4 are nearly exhausted. This is hastening the migration to IPv6 among service providers and

enterprises alike. The Brocade MLXe

is one of a comprehensive set of IPv6-certified products that Brocade offers to

simplify this migration for customers, without compromising performance levels. It is yet another example of how we’re

applying the Brocade One strategy to solve the most critical problems our customers face.

2. Grow the Ethernet Business

•

32% Yr./Yr. growth in

Ethernet products revenue

•

Nearly 50% sequential

growth in EMEA

•

Double-digit growth in

APAC

•

315 Elite and Premier

global channel partners

Strong performance drives growth

©

2011 Brocade Communications Systems, Inc.

Page 12 of  41

In Q1, our Ethernet products revenue grew more than 32% Yr./Yr. and total Ethernet revenue (products

and services) was up almost 23% Yr./Yr. Other positive signs include Q1 being the best quarter in winning

new Ethernet customer accounts since we started to track and report on this metric. EMEA was a particular

area of strength for us with the highest growth ever in terms of

new Ethernet accounts and nearly 50%

sequential growth in terms of Ethernet products revenue. APAC had double-digit sequential growth in Q1,

and was up over 65% Yr./Yr.

Consistent with our prior guidance for the quarter, the Federal Ethernet business in Q1 was down

sequentially, but was up more than 22% on a Yr./Yr. basis. Our non-Federal Ethernet business in the

Americas was up 37% on a Yr./Yr. basis.

Channel Partner Momentum

John McHugh, Chief Marketing Officer    

Barbara Spicek, VP of Worldwide Channels

©

2011 Brocade Communications Systems, Inc.

Page 13 of  41

Overall, I am pleased with our execution in our Ethernet business, which is a key success factor in Brocade being able to

grow our top-line profitably. We will continue to enhance existing business initiatives and introduce new ones to drive growth

in this market. Focusing on channel partner success is one example of this, because it is a critical go-to-market route for the

Ethernet business. 

In Q1, Brocade successfully recruited an additional 11 Elite and Premier channel partners to our Alliance Partner Network

(APN), giving us a total of 315 such partners globally, adding to the almost 7000 Select partners in the program. We also

introduced a number of new and enhanced APN program features that are designed specifically to educate, train and certify

our partners to better address data center, virtualization and cloud computing business opportunities. 

Brocade’s channel programs received significant industry recognition in this quarter when CRN Magazine, a high-profile

publication aimed at resellers, named Vice President of Worldwide Channels Barbara Spicek and Chief Marketing Officer

John McHugh among its “Top 100 Most Influential Executives”.

3. Maintain SAN Leadership

•

Record SAN sell-through in Q1

•

Record quarter for Server product revenue

•

110% sequential growth for

10 GbE-based convergence

products

Driving innovation and growth in converged networking

Brocade

Brocade

MLX

MLX

FC

iSCSI

NAS

FCoE

Brocade

Brocade

DCX

DCX

SAN

©

2011 Brocade Communications Systems, Inc.

Page 14 of  41

Maintaining Brocade’s leadership in the SAN market is just as important as growing our Ethernet Business. Brocade continues

to demonstrate leadership and generate momentum in the storage networking industry in both the traditional Fibre Channel

market as well as the emerging converged networking market.

Our strength in the SAN products business is reflected in the Q1 results with approximately 5% growth sequentially and an all-

time record in terms of sell-through following a very good Q4 FY10.

It is also reflected in the momentum of our Director and Server products businesses, which both experienced very strong

demand in Q1 including a record quarter for the Server products. 

Additionally, we are showing good progress in sales of our Ethernet fabric products supporting multiple and converged

protocols. These products include the Brocade 8000 FCoE Switch, the Brocade 1010/1020 Converged Network Adapters

(CNAs), Brocade VDX 6720 and embedded FCoE blades. The sales of these 10 GbE-based convergence products in Q1 was up

approximately 110% sequentially and more than 320% Yr./Yr., showing that customers are turning to Brocade to connect their

servers, both physical and virtual, to shared storage, regardless of technology or protocol.  We are committed to providing

leadership in this emerging category.

Brocade Leading Fibre

Channel

Transformation

Industry’s first end-to-end 16 Gbps

product portfolio

•

Unmatched Simplicity: Integrated

compression, encryption, and routing

•

Investment Protection: Upgrade

existing SAN infrastructure

•

Non-Stop Networking: Field-proven

“five nines”

availability

8-slot and 4-slot

Backbones

48-port 1U

16 Gbps

Fabric Switch

Mezzanine

16 Gbps

HBAs

©

2011 Brocade Communications Systems, Inc.

Page 15 of  41

Getting back to Fibre

Channel, this technology continues to be, by a wide margin, the

preferred protocol to provide shared

storage for server virtualization and desktop virtualization. In

fact, the rapidly growing adoption for both server and desktop

virtualization is a driving force toward continually faster connections in Fibre

Channel technology. Brocade again expects to

lead this technology transition with our plans to introduce a full suite of next generation 16 Gbps

products and solutions from

server adapters, embedded and fabric switches to directors/backbones later this year.

Another proof point of the relative health of the Fibre

Channel business is the fact that our OEM partners are continuing to

invest in Fibre

Channel technology. In addition, most industry research firms who track the Fibre

Channel market are predicting

growth in 2011 and well beyond, which supports our belief that this market is healthy and growing.

4. Generate More Awareness

©

2011 Brocade Communications Systems, Inc.

Page 16 of  41

One focus area in our FY 11 Playbook is our goal to generate broader global awareness of Brocade as a complete networking

solutions provider and not just the leading “SAN company”. In fact, one of the goals of our Brocade One strategy is to

demonstrate that Brocade is leading the transformation of the network in all areas of IT with the goal of helping our

customers transition smoothly to a world where information and applications can reside anywhere.

We have focused our global marketing and corporate communications efforts on high-impact programs to accomplish this.

Driving industry thought-leadership with contributions from across the company is an example. In the technology arena, this

is exemplified by our recent efforts to promote Ethernet fabrics

as the de facto

category name for next-generation, flat Layer

2 networks for virtualized data centers. In the non-technology realm, Brocade being awarded the prestigious “Pinnacle Grand

Prize”

by the Association for Financial Professionals for our innovative process to converge strategic liquidity planning with

enterprise risk management is another recent example of our thought-leadership.

Finally, our company-wide use of social media to communicate directly to all our key audiences including customers,

partners, investors and employees is an example of how Brocade is specifically leveraging the power of networking to

generate awareness. Please take a look at our social media campaigns and assets for yourselves at

brocade.com/socialmedia. 

5. Be an Employer of Choice

5. Be an Employer of Choice

©

2011 Brocade Communications Systems, Inc.

Page 17 of  41

Another important focus area in the FY 11 Playbook is our goal to be an “employer of choice”. We received an important industry

validation when Fortune Magazine, for the second year in a row, named Brocade as one of the “100 Best Companies to Work

For”.

The Fortune 100 list is based on direct feedback from our employees who gave us high marks in the areas of innovation, 

fostering a professional team environment, community giving, compensation, and flexible work environment. In the spirit of using

social media more, I encourage you to view my short video about the Fortune 100 award at

www.youtube.com/watch?v=yZFrd7yvNCI.

6. Grow Top-Line Profitably

•

32% growth Yr./Yr. in the Ethernet

products revenue

•

All-time record quarter of SAN

sell-through

•

320% growth Yr./Yr. in converged

networking products

•

Delivered higher EPS than outlook

Q1 2011 Summary

©

2011 Brocade Communications Systems, Inc.

Page 18 of  41

Overall, I am pleased with our performance in Q1 and with our ability to execute thus far to our

FY 11 Playbook, including growing the top-line profitably. Again, this quarter’s highlights include:

•32% growth in the Ethernet products revenue Yr./Yr. led by strength in EMEA, APAC and our Service Provider businesses;

•All-time record quarter in terms of sell-through in our SAN products business including a record in our Server products revenue;

•Good traction in sales of our converged networking products with

320% growth Yr./Yr. and 110% growth sequentially;

•Delivered non-GAAP EPS of $0.12 which topped our guidance of $0.09 to $0.10 for the quarter.

Q1 FY 2011 Financials

Richard Deranleau, CFO

©

2011 Brocade Communications Systems, Inc.

Page 19 of  41

Prepared comments provided by Richard Deranleau, CFO

Financial Highlights

* Note: Non-GAAP, please see GAAP reconciliation in appendix

Growing the top-line profitably and reducing term debt

Q1 11

Revenues

Overall revenue

$546M

SAN sell-through

Record quarter

Ethernet revenue

+32% Yr./Yr.

Profitability

Non-GAAP EPS* (diluted)

$0.12

GAAP EPS (diluted)

$0.06

Generating Cash/Reducing Debt

Operating cash flow

$118M

Total debt payments

$40M

Term loan down to $311M at end of Q1 11

©

2011 Brocade Communications Systems, Inc.

Page 20 of  41

Brocade executed well in Q1, achieving revenues of $546M which was up 1.2% Yr./Yr. and down slightly Qtr./Qtr., in line with

the guidance we shared with you on our last earnings call. Storage demand was very strong in Q1 with SAN sell-through

reaching an all-time high for the company. Storage product revenues were up 4.9%

Qtr./Qtr., in a quarter when OEM partners

reduced their inventory positions as expected. OEM inventories are now at their lowest since Q4 09.  Ethernet product

revenues were up 32.2% Yr./Yr. driven by growth across all geographies.  Ethernet product revenues were down 11.5%

Qtr./Qtr. from our all-time record revenue in Q4 driven by lower Federal spending, consistent with our prior guidance. 

Non-GAAP earnings per share on a diluted basis was $0.12 for Q1, which includes a benefit from a lower-than-expected US

Federal tax rate resulting from the passage of the R&D tax credit bill.  Excluding this benefit our non-GAAP EPS for Q1 would

have been $0.11, which is higher than the guidance we provided of $0.09 to $0.10 for the quarter. We generated $118M in

operating cash flow in Q1, the highest cash generation since Q4 09, which we used to pay down our term loan and to build our

cash balance.

Key Financial Metrics

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Revenue

$539M

$501M

$504M

$550M

$546M

Sequential growth

3.4%

(7.1)%

.5%

9.3%

(0.8)%

Year-over-year growth

25.0%

(1)

(1.1)%

2.1%

5.5%

1.2%

Non-GAAP gross margin*

64.9%

62.7%

60.4%

62.3%

62.0%

Non-GAAP operating margin*

26.0%

20.5%

17.3%

20.4%

17.1%

Non-GAAP EPS*—diluted

$0.19

$0.13

$0.13

$0.14

$0.12

GAAP EPS—diluted

$0.11

$0.05

$0.05

$0.05

$0.06

(1)

Acquisition of Foundry in December 2008

* Note: Non-GAAP, please see GAAP reconciliation in appendix

Managing the business to our 2-year target model

©

2011 Brocade Communications Systems, Inc.

Page 21 of  41

Turning first to revenues, Q1 revenues were $546.0M in a quarter where we saw good execution across our business

segments and particularly in our EMEA and APAC geographies. Revenues came in near the high end of the guidance

range we provided in our Q4 earnings call driven by strong storage demand and where both EMEA and APAC posted

record percentage contribution of revenue for the company in Q1.  

Storage product revenues were up 4.9% sequentially driven by higher director and server sales which were up 16% and

6%, respectively, compared to Q4. Ethernet product revenues were down 11.5% sequentially driven by lower Federal

revenue as expected, partially offset by growth in the international regions led by EMEA.  We continue to see progress in

our Ethernet sales investments and are pleased with the improvements and growth in both EMEA and APAC this quarter.

Global Services revenues were down 3.6% sequentially driven by associated lower Ethernet support revenue. OEM

inventory levels exiting the quarter were down to about two weeks of supply, as expected, as OEMs trimmed their

inventory entering the seasonally slower quarters of the year. 

Non-GAAP Gross Margins of 62.0% were at the high end of our guidance range of 61.5% to 62.0% for the quarter driven

by the strong storage performance. Non-GAAP gross margins in the quarter were comfortably within our 2-year target

model range of 61% to 63%. 

Non-GAAP operating margins were 17.1%, above the guidance we gave of 15% to 16% for the quarter, and in our 2-year

target model range of 17% to 20%. The sequential decline in operating margins was driven by slightly lower gross

margins and higher operating expenses as a percentage of revenue driven by our sales and marketing investments over

the past two quarters. Q1 non-GAAP operating expenses were higher as a percentage of revenue at 44.9%, but lower

than the guidance of 46% to 47% for the quarter. 

The Q1 11 effective non-GAAP tax rate was 15.9% and effective GAAP tax benefit was (26.6%).  Both tax rates reflect

the benefit from the US R&D tax credit that was approved during Q1 by the US Congress.   

Looking to the Balance Sheet, we repaid $39.7M of our senior secured debt of which $30.0M was in excess of the

mandatory amount due, bringing our acquisition term debt down to approximately $311M. Total Q1 diluted shares were

491M shares and within our expected range when we provided our outlook for the quarter. We did not repurchase any

stock during the quarter.

Revenue: SAN, Ethernet, and Global Services

SAN growth offset lower Federal Ethernet revenue

©

2011 Brocade Communications Systems, Inc.

Page 22 of 41

Turning to revenues by business unit, our Storage product revenue was $331.2M in the quarter, an increase of 4.9%

sequentially. Storage represented 61% of revenues in Q1 versus 57% in Q4. 

Our Ethernet product revenue was $126.1M in the quarter, a decrease of 11.5% sequentially. Ethernet product revenue

represented 23% of total revenue versus 26% in Q4. 

Our Global Services revenue was $88.7M in the quarter and represented 16% of revenues, down slightly versus 17% in Q4.

Global Services revenue was down  3.6% sequentially driven primarily by lower Ethernet support revenue. 

Total Ethernet Business Revenue

Strong  year-over-year Ethernet revenue growth

$124.6

$156.7

$149.5

$170.5

$153.2

Total  +23%

Support  -7%

Products  +32%

Q1 Yr./Yr. Compares

©

2011 Brocade Communications Systems, Inc.

Page 23

of 41

Looking at our Ethernet business, including hardware and Ethernet based support and services, Q1  revenues were

$153.2M up 23% Yr./Yr. and down 10% from our record quarter in Q4 10.  

Our Federal Ethernet business was $20.4M, up 22% Yr./Yr. which was slightly higher than our previous guidance of $15-

20M for the quarter.  Non-Federal Ethernet revenue was also up 23% Yr./Yr. showing strength across our product

portfolio and customer base.  The non-Federal Ethernet business growth was driven by strong performances in our

international geographies led by the EMEA region. We saw good growth in our new accounts with both initial sales in the

quarter as well as new customers from previous quarters returning and buying again. We also saw strong demand for our

stackables in Q1, reaching a new record for Brocade for these products. 

Total Ethernet Business Revenue

By customer segment

Strong year-over-year growth across all customer segments

$124.6

$156.7

$149.5

$170.5

$153.2

Total  +23%

Federal  +22%

Service Provider +58%

Enterprise  +13%

Q1 Yr./Yr. Compares

©

2011 Brocade Communications Systems, Inc.

Page 24 of 41

We were also very pleased with continued strength in our Service Provider and Enterprise segments in Q1. Revenue from

customers that we have identified as service providers grew to now represent 26% of total Ethernet business and grew 5

Yr./Yr. reaching their 2nd highest revenue quarter for Brocade. Revenue from enterprise customers, excluding Federal,

were up 4.4% sequentially and grew 12.5% Yr./Yr. Federal Ethernet business was down 48% sequentially but up 22%

Yr./Yr., consistent with the expectation set out on last quarter’s earnings call.    

Ethernet ASP sequential declines were in the low single-digits, at the low end of the Q1 guidance.

Total SAN Business Revenue

Quarter-over-quarter growth driven by Directors and Server products

$414.8

$344.3

$354.0

$379.9

$392.8

Total  -5%

Support +1%

Products  -6%

Q1 Yr./Yr. Compares

©

2011 Brocade Communications Systems, Inc.

Page  25 of 41

Looking at our SAN business, including hardware and SAN based support and services, Q1 revenue of $392.8M grew 3.4%

from Q4.

Demand for Brocade’s leading SAN products was strong resulting in SAN product revenue of $331.2M in the quarter, up

4.9% sequentially. Increases in revenue across our director and server product families drove the overall SAN increase

Qtr./Qtr. We generated the 2nd

highest revenue quarter for directors and a record revenue quarter for our Server product

group in Q1.

Our Server

product group, including Embedded Switches, HBA’s, and Mezzanine Cards, posted record revenues of

$48.7M which was up 7.0% Yr./Yr. and up 6.4% from a strong Q4. Embedded Switches were up 5.7% sequentially while

our

host

products

including

HBA’s

and

Mezzanine

Cards

were

up

nearly

200%

Yr./Yr.

SAN

ASP

sequential

declines

were

in

the

low

single-digits,

consistent

with

the

prior

quarter.

-

As

we

look

at

our

multi-protocol

and

converged

networking

products

including

the

Brocade

8000,

FCoE

blades

for

our

flagship DCX storage chassis, VDX switches and CNAs, total converged product revenue growth was more than 110%

sequentially. We feel that our product portfolio continues to demonstrate our leadership in multi-protocol and convergence

solutions in the marketplace as networks

evolve.

Revenue: 10% Customers,

Other OEM, Channel/Direct

Higher mix of OEM revenue driven by overall mix to SAN business

©

2011 Brocade Communications Systems, Inc.

Page 26 of 41

In Q1, consistent with the prior quarters, Brocade had three customers that had revenue greater than 10%. EMC, IBM and

HP all contributed more than 10% of revenues individually. Collectively, our top three OEMs contributed 47% of revenues

in Q1, up from 44% in Q4, and down from 54% in the year ago quarter. Other OEMs represented 19% of revenues in Q1

versus 17% in Q4. We saw very good growth from HDS and Dell in the quarter which drove this metric higher sequentiall

Channel and Direct were 34% of revenues in Q1, a decrease from 39% in Q4, reflecting the overall mix away from

Federal Ethernet business in the quarter to SAN and the OEM routes to market. 

Segment Revenues and

Gross Margin Snapshot

Q1 11 vs. Q4 10 revenue mix and non-GAAP gross margin*

* Note: Non-GAAP, please see GAAP reconciliation in appendix

Q4 10

Q1 11

Revenues by Segment ($M)

Non-GAAP Gross Margin*

by Segment

Gross Margins: SAN strong; Ethernet down due to lower revenue

©

2011 Brocade Communications Systems, Inc.

Page 27 of 41

Non-GAAP Gross Margins of 62.0% were at the high end of our guidance range of 61.5% to 62.0% for the quarter driven

by the strong storage performance and down 30 basis points from Q4. 

Q1 SAN gross margins, were 71.4% unchanged from Q4, reflecting a strong mix of director products that is typical in our

Q1. The higher mix of SAN products at an overall company level increased margins by approximately 75 basis points. 

Q1 Ethernet non-GAAP gross margins were 46.7%, down from 47.8% in Q4. The lower Ethernet gross margins were

primarily driven by lower volumes in the quarter. The impact of lower Ethernet gross margins on overall company gross

margins was approximately -25 basis points in Q1. We continue to be focused on our Ethernet gross margin initiatives

outlined during our Analyst Day and expect to see improvements again in the 2nd half of 2011 to be within our Ethernet

gross margin target exiting the year.

Global Services non-GAAP gross margins were 48.7% in Q1, down versus 53.7% in Q4 due to lower revenue and mix to

lower margin support offerings. The impact of lower services gross margins on overall company gross margins was

approximately -80 basis points in Q1. 

Operating Expenses and Margins

* Note: Non-GAAP, please see GAAP reconciliation in appendix

Non-GAAP Operating Margins*

Non-GAAP Operating Expenses*

as a Percentage of Revenues

2-year target operating

expense range: 43–44%

Operating margins within our 2-year target model

2-year target operating

margin range: 17–20%

©

2011 Brocade Communications Systems, Inc.

Page 28

of 41

On a non-GAAP basis, total operating expenses were 44.9% of revenues in Q1 versus 41.9% in Q4. Operating expenses

were better than our previous guidance range of 46% to 47% of revenues due, in part, to a slower hiring ramp than

planned as well as some project spending that moved out of the quarter. The dollar increase in operating expenses

sequentially reflects the investment in our sales organization made in Q4 as well as some additional investments in Q1.  

We added 70 headcount in Q1, of which the majority was in Sales. 

Non-GAAP operating margins were 17.1% in Q1, lower than our strong Q4 operating margins of 20.4% due to higher

operating expenses and slightly lower gross margins in the quarter. Our 2-year target range of operating margins is 17%

to 20% and we plan to be at the low end of that range for the full year.

Balance Sheet and Cash Flow Highlights

as of January 29, 2011

Cash flows enable de-leveraging and reinvestment

* Note: Adjusted EBITDA is as defined in the term debt credit agreement

** Note: Giving effect to the McDATA

convertible debt of $173M repaid on February 16, 2010

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Cash from operations

$69.1M

$67.7M

$55.3M

$106.4M

$118.2M

Capital expenditures

$47M

$62M

$47M

$46M

$23M

Free cash flow

$22M

$6M

$9M

$61M

$95M

Debt payments

$506.5M

$202.2M

$30.6M

$30.2M

$39.7M

Cash, equivalents, and

short term investments

$328M**

$290M

$296M

$336M

$416M

Senior secured debt

$1.04B

$1.01B

$0.99B

$0.96B

$0.92B

Adjusted EBITDA*

$154.7M

$116.4M

$101.5M

$127.7M

$114.5M

Stock repurchase

$0

$20M

$5M

$0

$0

Senior secured leverage ratio

1.99x

1.95x

1.97x

1.92x

2.0x

Covenant

2.5x

2.5x

2.5x

2.5x

2.5x

Fixed charge coverage ratio

2.0x

1.8x

1.7x

1.7x

1.8x

Covenant

1.25x

1.25x

1.25x

1.25x

1.5x

©

2011 Brocade Communications Systems, Inc.

Page 29 of 41

Cash from operations was over $118M in Q1, our highest level since Q4 09 and better than our previous guidance.

Total capital expenditures in the quarter were $23M. Free cash flow was nearly $95M in the quarter, again the highest

since Q4 09. Capital spending on the Company campus fell to approximately $2M in the quarter, reflecting the

completion of the project with only minor final payments remaining through Q3 11. 

Cash and equivalents grew to $416M, up $80M from $336M in Q4. In Q1, we reduced our debt principal by $39.7M

including $30.0M in excess of the mandatory payment.

As we stated during our Analyst Day, we continue to focus on increasing operating cash flow and our priorities for

cash will be focused on paying down our term debt first, continuing to build our cash reserves, and repurchasing stock

on an opportunistic basis and subject to debt covenants.  

Net Debt:

Defined as Total Debt Less Total Cash

Net-debt decreased by $570M from Q1 09 to Q1 11

More than

50% reduction

in 2 years

©

2011 Brocade Communications Systems, Inc.

Page 30 of 41

Net Debt has declined from $1,073M at the end of Q1 09 to $503M at the end of Q1 11. This represents a $570M or 53%

reduction over the last two years, demonstrating Brocade’s ability to generate cash and reduce our long-term debt. Our

term debt loan balance is now down to $311M.

Adjusted EBITDA in the quarter was $114.5M, which was down from the Q4 level of $127.7M. The Senior Secured

Leverage Ratio of 2.00x and the Fixed Charge Coverage Ratio of 1.80x are both within the covenant requirements of our

term credit agreement. 

Q2 2011 Planning Assumptions

IT market conditions

•

Macro economic conditions improving

•

Strength building in international IT spending

•

Federal spending improving

•

SAN revenue slightly better than typical seasonality

•

Expect to grow at least with market in Ethernet

ASP trends

•

Low single-digit declines in SAN pricing

•

Low to mid single-digit declines in Ethernet pricing

Taxes

•

Outlook tax rate does not include discrete items

•

Outlook tax rate includes R&D tax credit

OEM inventories

•

Expect to come down slightly exiting Q2

©

2011 Brocade Communications Systems, Inc.

Page 31

of 41

Now, as we look forward to Q2 11, here are some things to consider in developing your financial models:

•

We continue to look at GDP and IT spending forecasts for next quarter and this year. Our current GDP growth

assumptions have not changed since Analyst Day 2010 but we are seeing more positive signs as we enter our Q2.

•

We continue to monitor the strength of international markets, specifically Europe and Japan, and expect to see

continued growth as these economies strengthen.

•

We are mindful of the

ongoing

Federal budget discussions but believe that we will see an improvement in the Federal

spending in Q2.

•

Q2 SAN demand is historically down 6% to 8% and we expect Q2 11 revenue to be slightly better than historical

performance.

•

We continue to expect improvements

and growth in our Ethernet business as our new sales headcount becomes more

productive.

•

We anticipate that our new VDX and VCS products will continue to

ramp but will have minimal impact to revenue/gross

margin in Q2.

•

We expect quarterly ASP declines in our SAN business to remain in the low-single digits. ASP declines in our Ethernet

business are expected to be in the low to mid-single digits.

•

From a tax rate perspective, we do not forecast discrete events due to the inherent uncertainty of their timing, but have

reflected the benefit of the passage of the R&D tax credit in our full year tax rate.

•

Regarding OEM inventory, we would expect OEM inventory levels to

be flat to a slight decline in absolute dollar terms

exiting Q2, given that we are in our seasonally

softer quarters.

Q2 2011 Financial Outlook

As of February 17, 2011

* Note: Non-GAAP estimates assume exclusion of the same category of items excluded from Q4 10 non-GAAP results

Q2 11

Revenue range (up 9–11% Yr./Yr.)

$545M–555M

Non-GAAP gross margin*

61.5%–62.0%

Non-GAAP operating expenses*

45.5%–46.0%

Non-GAAP operating margin*

15.5%–16.0%

Other income/other expense

($21M)

Non-GAAP tax rate*

24%–25%

Fully diluted shares outstanding

497M–502M

Non-GAAP EPS*

$0.10

Operating cash flow

$90M–$100M

Capital expenditures

$30M–$33M

Free cash flow

$60M–$67M

©

2011 Brocade Communications Systems, Inc.

Page 32 of  41

Given these planning assumptions, in Q2 11 we expect: 

•Overall revenue to be $545M to $555M, flat to up 2% Qtr./Qtr. and up 9% to 11% Yr./Yr.

•Non -GAAP Gross Margins to be 61.5% to 62.0%

•Non-GAAP Operating Expenses to be 45.5% to 46.0%

•Non -GAAP Operating Margins to be 15.5% to 16.0%

•Other Income/Expense net to be approximately ($21M)

•Non -GAAP tax rate to be approximately 24% to 25%

•Diluted shares outstanding to be in a range of 497M to 502M shares

•Non -GAAP EPS to be 10 cents

•Operating Cash Flow of $90M to $100M

•Capital Expenditures of $30M to $33M

•Free Cash Flow of $60M to $67M

Financial Summary

Richard Deranleau, CFO

©

2011 Brocade Communications Systems, Inc.

Page 33 of  41

To summarize from a financial perspective, we are pleased with a very good start to our FY 11. 

We continue to be focused on delivering shareholder value by focusing on our FY11 Playbook for this year.

We are looking forward to answering your questions in the Q&A session of our conference call.

Jason Nolet

VP Data Center

and Enterprise

Networking

Live Q&A Call

February 17, 2011, 2:30PM Pacific Time

Richard

Deranleau

CFO

John McHugh

CMO

Ian Whiting

SVP WW Sales

Mike Klayko

CEO

Dave Stevens

CTO

©

2011 Brocade Communications Systems, Inc.

Page 34

of

41

Prepared comments provided by Rob Eggers, Investor Relations

That concludes Brocade’s prepared comments. At 2:30 p.m. Pacific Time on February 17 Brocade will host a webcast

conference call at www.brcd.com primarily devoted to answering questions submitted via email to ir@brocade.com and taken

live from participants via telephone.

Thank you for your interest in Brocade.

Appendix and Reconciliations

©

2011 Brocade Communications Systems, Inc.

Page 35 of  41

Quarterly Net Income

GAAP/Non-GAAP Reconciliation

(In Thousands)

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Net income on a GAAP basis

51,095

22,380

21,961

23,416

27,179

Adjustments:

Legal fees associated with indemnification obligations

and other related expenses, net

301

277

(74)

(666)

124

Stock-based compensation expense

21,523

30,146

24,682

25,275

19,906

Amortization of intangible assets

34,902

30,657

30,657

30,657

30,656

Acquisition and integration costs

204

–

–

–

–

Loss on sale of property

8,783

(47)

–

–

–

Restructuring costs and facilities lease loss

–

–

–

1,059

–

Legal fees associated with certain pre-acquisition litigation

299

17

13

243

77

Provision for certain pre-acquisition litigation

–

–

1,604

–

–

Interest due to adoption of new standard

2,142

348

–

–

–

Income tax effect of adjustments

(25,239)

(21,044)

(15,217)

(13,975)

(17,208)

Non-GAAP net income

94,010

62,734

63,626

66,009

60,734

©

2011 Brocade Communications Systems, Inc.

Page 36

of

41

Adjusted EBITDA and Sr. Secured Leverage Ratio

As defined in the term credit agreement

Consolidated Senior Secured Leverage Ratio

Q1 FY 10

Q2 FY 10

Q3 FY 10

Q4 FY 10

Q1 FY 11

$ Thousand

Actual

Actual

Actual

Actual

Actual

Consolidated Net Income

$51,095

$22,380

$21,961

$23,416

$27,179

plus

(i) Consolidated Interest Charges

$22,073

$19,522

$22,061

$22,202

$21,546

(ii) Provision for Federal, state, local and foreign income taxes payable

$1,277

$0

$0

$5,988

$0

(iii) Depreciation and amortization expense

$51,012

$46,600

$50,493

$51,532

$52,522

(iv) Fees, costs and expenses incurred on or prior to the Acquisition Closing Date in

connection with the Acquisition and the financing thereof

$0

$0

$0

$0

$0

(v) Any cash restructuring charges and integration costs in connection with the

Acquisition, in an aggregate amount not to exceed $75,000,000

$204

$0

$0

$0

$0

(vi) Non-cash restructuring charges incurred in connection with the Transaction, all as

approved by Arrangers

$1,502

$1,084

$1,006

$930

$848

(vii) Other non-recurring expenses reducing such Consolidated Net Income which do not

represent a cash item in such period or any future period

(in each case of or by the Borrower and its Subsidiaries for such Measurement Period)

$8,783

($47)

$0

$574

$175

(viii) Any non-cash charges for stock compensation expense in compliance with FAS

123R and amortization of the fair value of unvested options under the Acquired

Business’

employee stock option plan assumed by the Borrower

$21,523

$30,146

$24,682

$25,275

$19,906

(ix)

Legal fees and expenses relating to the Borrower’s indemnification obligations for

the benefit of its former officers and directors in connection with its historical stock

option litigation

$250

724

376

$22

$15

minus

(i)

Federal, state, local and foreign income tax credits

$0

($840)

($15,096)

$0

$5,717

(ii)

All non-cash items increasing Consolidated Net Income (in each case of or by the

Borrower and its Subsidiaries for such Measurement Period)

($3,036)

($3,127)

($4,026)

($2,212)

$1,995

Consolidated EBITDA

$154,683

$116,442

$101,457

$127,727

$114,479

4 Quarter Trailing Consolidated EBITDA

$523,861

$520,429

$502,567

$500,309

$460,105

Consolidated Senior Secured Debt

$1,041,483

$1,015,957

$989,803

$959,491

$919,312

Consolidated Senior Secured Leverage Ratio (x)

1.99

1.95

1.97

1.92

2.00

©

2011 Brocade Communications Systems, Inc.

Page 37 of  41

Q1 2011 Cash and Debt Covenant

Adjusted EBITDA* Performance

(In Millions)

Strong Capital Structure

(In Millions)

Within Debt Covenant

Cash Balance**

(In Millions)

* Note: Adjusted EBITDA is as defined in the term debt credit agreement              ** Cash, equivalents and short term investments

©

2011 Brocade Communications Systems, Inc.

Page 38

of 41

Domestic and International

Reported Revenue

Reported revenue on a ship-to basis

©

2011 Brocade Communications Systems, Inc.

Page 39 of  41

Segment Revenue Detail

Product segment as a percent of revenue

* Reallocation of SAN common hardware altered historic SAN percentages

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

SAN Business

*

Directors

47%

40%

37%

39%

44%

Switches

41%

46%

49%

46%

41%

Server

12%

14%

14%

15%

15%

Ethernet Business

Chassis

61%

64%

65%

63%

58%

Stackables

39%

36%

35%

37%

42%

©

2011 Brocade Communications Systems, Inc.

Page 40

of 41

Thank You

www.brcd.com

©

2011 Brocade Communications Systems, Inc.

Page 41 of  41