Storage Soup

Aug 17 2012   8:20AM GMT

Brocade CEO says he’ll leave on a happy note

Dave Raffo Dave Raffo Profile: Dave Raffo

Brocade CEO Mike Klayko is stepping down after more than seven years in the position, saying the switch maker’s rosy financial position makes this a good time for a transition at the top.

Klayko Thursday revealed he would leave Brocade, pending the company’s successful search for a successor. The announcement coincided with the vendor’s solid earnings report for last quarter.

Klayko joined Brocade in 2003 when he sold Rhapsody Networks to his larger rival, and he replaced Greg Reyes as CEO in a 2005 shakeup that followed an internal audit into the company’s stock options policy. Reyes eventually was convicted and sent to prison for fraudulently backdating stock options.

Brocade’s revenue of $555.3 million last quarter beat the top end of its forecast by $10 million and increased 10% over the previous year. Its storage revenue rose 13% year-over-year to $377.6 million, and its profit was $43 million for the quarter.

Klayko said the good numbers make this an opportune time to step down.

“I’ve been doing this for a long time,” he said during the earnings call. “I think anytime you’re going to move on in an organization, you move on at a time of strength, not a time of weakness. And I think we’re very strong and we will continue to be strong.”

Klayko said he will stay on until Brocade finds a replacement. After that, he will also give up his position on the board and make a clean break from the company.

“I believe once you decide to make a transition, you make a complete transition,” he said.

Klayko’s tenure at Brocade was framed mainly by two acquisitions he made, followed by a failure to sell off the company after years of trying. Brocade acquired its main Fibre Channel (FC) switch rival McData for $713 million in 2006, giving it the lion’s share of the FC switch market and leaving Cisco as its only rival. Brocade then moved into the Ethernet networking space in 2006 when it spent $2.6 billion for Foundry Networks.

Following those deals, Brocade has remained on top in FC switching but has not had the success it hoped for in the Ethernet space.

Brocade has also been the subject of acquisition rumors over the past few years. Hewlett-Packard (HP) passed on buying Brocade when HP acquired 3Com in 2009, and Dell did the same when it bought Force10 last year. There were also talks to take Brocade private, but that hasn’t happened. It will be interesting to see if Klayko’s departure facilitates a deal with a larger vendor or private equity firms.

Former Brocade employees say Klayko has ruled the company with an iron fist, prompting a lot of turnover, including top executives. The most recent top departures include CFO Richard Deranleau in mid-2011 and VP of worldwide sales Ian Whiting in June.

Klayko, who headed Brocade sales before becoming CEO, has served as the interim sales VP since Whiting left.

“Decisions like these are never easy. It will be difficult to say goodbye,” Klayko said of his resignation. “Brocade has a great team of talented and dedicated professionals and is in a great position, both financially and in terms of our innovation portfolio. I’m therefore comfortable that this is a good time for me to move on.”

 

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