A couple of days ago, on 18th August, storage and ethernet vendor Brocade released their Q3 2011 results (their Year End is in October).
It roughly followed what was outlined in their Preliminary Q3 numbers (flat revenue year-on-year) released on 5th August, and their shares taking their biggest hit since IPO, back in the ’99 boom time. Despite showing earlier signs of rallying, their stock is still trading around the $3.40 mark as I write.
It’s no secret that Brocade has been looking for a buyer for a couple of years, since completing the Foundry Networks integration to add ethernet to their existing storage focus. However, in the buyout beauty contest, likely suitor Dell has just passed Brocade up in favour of fluttering it’s eyelashes at Force10 Networks, which abandoned it’s own plans to IPO in favour of the Dell acquisition.
Interestingly, it’s not as though Foundry ended up being an indigestable meal for Brocade, as some might have predicted. It seems quite the opposite. The growth in their ethernet business is somewhat offsetting a slowdown in their SAN equipment sales, though it’s unclear if some element of this is “ethernet fabric” displacement in what would be classic fibre-channel space.
So, might Brocade be finding themselves in a stitch over their investors getting their money out? Their Exit Strategy, which seemed to be concentrated on selling on to a large storage/server builder at a profit, doesn’t look like it’s getting much traction anymore. Are there many potential buyers left? What happens if the answer is “no”? How do you keep going?
Here I think lies part of the problem: It seems that the common investor Exit Strategy becomes focused around “doing stuff to make money”, rather than “doing stuff that makes money”.
That has been the achilles heel I’ve long suspected exists in technology investing: While there might be a good solid idea at the foundation, one often gets the impression that more corporate priority can be given over to ensuring there’s an Exit Strategy for the investors, and following that road, rather than a sound development strategy to ensure the product or service itself drives the success of the company, and not how you sell it. The two find themselves at juxtaposition and can be a source of unwanted friction, as well.
In Brocade’s case, I think the current marketing style isn’t doing them any favours. Look at brocade.com. Videos of talking heads, trotting out technobabble, or grinning product managers waxing lyrical while stroking their hardware. “Video data sheet” – now what the hell is that all about? Yet, everyone’s up to it. Animated banners on pages where you actually just want the dry data and cold hard facts. It’s almost like they don’t want you to find the information you’re really looking for. Please can I just have a boring old data sheet?
Maybe in cases like this it’s time to go back to basics: Making something you’re proud of, something you can be happy putting your name to, which is how many great products and brands developed in the past. Question is, have tech companies remembered how, and do investors have the longer-term stomachs for it?