Brocade Communications Systems 8K Brocade Reports Fiscal Q2 Results | BRCD 20 May 10

Q2 FY 2010 EARNINGS

May 20, 2010

Exhibit 99.2

Brocade Q2 FY 2010 Earnings

5/20/10

2010 Brocade Communications Systems, Inc.

Page 1

of 42

Prepared comments provided by Steve Coli, Investor Relations

Thank you for your interest in Brocade’s Q2 Fiscal 2010 Earnings Presentation, which includes prepared remarks,

slides, and a press release detailing fiscal second quarter 2010

financial results. The press release was issued shortly

after 1:00 p.m. Pacific time on May 20, 2010, via Business Wire and First Call. The press release, along with these

prepared

comments

and

slides,

has

been

made

available

Brocade’s

Investor

Relations

website

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, cash and debt positions, plans and business outlook, 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-Q for the fiscal quarter ended January 30, 2010 and our Form 10-K for the

fiscal year ended October 31, 2009. 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

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

any such information or forecast.

This presentation includes non-GAAP financial measures. The most directly

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

GAAP figures are provided in our Q2 10 press release, which has been furnished

to the SEC on Form 8-K, and in this slide presentation.

Please see risk factors on Forms 10-K and 10-Q filed with the SEC

Brocade Q2 FY 2010 Earnings

5/20/10

2010 Brocade Communications Systems, Inc.

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The information in Brocade’s prepared comments includes forward-looking statements, including without limitation,

statements about Brocade’s financial results, cash and debt positions, plans and business

outlook. These forward-

looking statements 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-Q for the fiscal quarter ended January 30,

2010 and our Form 10-K for the fiscal year ended October 31, 2009. 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.

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.

Agenda

Prepared comments followed by live Q&A call

Richard Deranleau

CFO

Mike Klayko

CEO

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

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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 web cast beginning at 2:30 p.m. Pacific time on May 20 at

www.BRCD.com

and

will

archived

Brocade’s

Investor

Relations

website

for

approximately

months.

Participants

are

invited

submit

questions

via

ir@brocade.com

minutes

prior

the

conference

call

and

ask

live

questions during the call.

Fiscal 2010: Q2 Earnings

Mike Klayko, CEO

Brocade Q2 FY 2010 Earnings

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CEO Mike Klayko’s

prepared comments

Executive Summary

Q2 Results

•

$501M revenues

•

56.7% non-GAAP gross margin*

•

$0.13 non-GAAP EPS*

•

$116.4M adjusted EBITDA**

Ethernet

•

34% Qtr./Qtr., 2% Yr./Yr. increase

•

Strong recovery of Federal business

(161% Qtr./Qtr.)

•

10 Gigabit Ethernet demand

Storage Area Networking (SAN)

•

Robust end-user demand fueled by

8 Gigabit Fibre

Channel

•

Channel inventories declined

Results in-line with expectations

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

Brocade Q2 FY 2010 Earnings

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Quarterly Revenues

$506M

$493M

$522M

$539M

$501M

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

** Adjusted EBITDA is as

defined in the Term Debt Credit Agreement

Brocade reported Q2 revenues of $501M, with GAAP EPS (diluted) of $0.05, non-GAAP EPS of $0.13 and adjusted

EBITDA of $116.4M. Brocade exceeded non-GAAP EPS expectations for the 19th

consecutive quarter, achieved through

an effective balance of operational discipline and a diversified

business model across geographies, technology segments

and multiple go-to-market routes.

Q2 was highlighted by a rebound in our Ethernet products revenue, which accounted for 26% of our total revenues

compared to 18% in Q1. This equated to 34% growth sequentially and 2% growth year-over-year. This performance was

Ethernet business also benefited from strong adoption of 10 Gigabit Ethernet (GbE) products. I will review the initiatives

we committed to on our last earnings call in regard to growing our Ethernet business shortly.

Our Storage Area Networking (SAN) business experienced robust demand among end-users, with better-than-normal

seasonal results, in what is typically a weak SAN quarter. This was offset on a reported revenue basis by our OEM

partners’

decision to lower their inventory levels. Customers continue to

invest in this tried-and-true technology to keep

pace with ever-accelerating storage requirements and to better support emerging

IT trends such as virtualization and

migration toward cloud-enabled service models. I will cover our SAN business in more depth a bit later in my comments.

Initiatives to Drive Ethernet Sales Growth

Strengthened sales resources

•

Established demand and lead-generation program

•

Created inside sales organization (US and EMEA)

Added top talent with Ethernet experience

•

John McHugh appointed as CMO

•

Hiring of sales headcount

Accelerated go-to-market strategies

•

Continued to add Distributors and Value Added Resellers

•

Expanded EMC relationship into Ethernet networking

Invested in advanced technologies

•

Early orders for 100 Gigabit Ethernet (GbE) technology

•

Continuing work on next-generation Ethernet technology

New sales structure, quotas, and go-to-market strategies

Brocade Q2 FY 2010 Earnings

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As we mentioned in our last earnings call, we have implemented several initiatives to help drive both immediate and long-term

growth in our Ethernet business. Please keep in mind that since the acquisition of Foundry, we had been somewhat

constrained by our debt covenants. We shifted a portion of our resources into engineering and product development. We will

unveil the fruits of this labor during our upcoming Technology Day, which I will discuss later in my remarks. Entering Q2 with

more financial flexibility from our balance sheet restructuring,

we were able to concentrate on the go-to-market strategy of our

Ethernet business. To accelerate end-user demand and grow our account penetration for our Ethernet products, in Q2 we

have specifically:

•Restructured our sales incentive strategies to drive an increased focus on our Ethernet business

•Enabled the traditional Ethernet sales personnel to only focus on our Ethernet business

•Begun hiring more sales people with experience in the Ethernet market in an effort to achieve more high-touch customer

intimacy. We are pleased that these sales people have assimilated rather quickly and initially demonstrated faster-than-

expected impact on revenues.

•Established an inside sales organization and developed programs tailored to Ethernet products in the US

and EMEA

•Hired John McHugh, our new Chief Marketing Officer, a networking

industry veteran of more than 25 years at HP/ProCurve

and most recently at Nortel, to drive market focus and demand-generation through direct and channel programs

•Strengthened our indirect routes by continuing to secure reseller agreements with leading distributors and value-added

resellers worldwide

•Maintained our momentum in our channel strategies by introducing

new sales, training and certifications program purpose-

built for our channel partners, as was demonstrated at our most recent US Partner Summit in April

•Maintained a steady-hand in cultivating Ethernet business through our OEMs, which we

realize will take time to ramp but

believe offers significant opportunities

•Recently announced that EMC would begin reselling our Ethernet portfolio, becoming the third OEM (after IBM and Dell) to

offer these products to its customers

•Accelerated development of advanced technologies that are designed to spur long-term growth while generating business in

the near-term. Specifically, Brocade recently hosted a summit with key customers to discuss the deployment of 100 GbE

technology for high-performance networking applications. Based on the success of this summit, Brocade has begun taking

early orders for our 100 GbE-based products.

Ethernet Customer Account Penetration

Cumulative new Ethernet accounts

Brocade Q2 FY 2010 Earnings

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> 500

> 750

1000

Q4 09

Q1 10

Q2 10

We believe that our refocused strategies on the Ethernet business should continue to bolster our success in the form

of net-new enterprise Ethernet accounts that Brocade has been able to win since the acquisition of Foundry. Exiting

Q1, we had won more than 750 such new accounts. In Q2, we added almost 250 new accounts, giving us a cumulative

total of almost 1000 new Ethernet accounts. Of course, we will continue to pursue customer account penetration,

which is a cornerstone of our Ethernet growth strategy.

As we said in Q1, we expect the proof-of-concept trial phases of these new accounts to typically take anywhere from six

to nine months, while achieving fully approved vendor status for

production environment deployments to typically take

12 to 18 months. We believe we are on a path to securing our place as a fully approved Ethernet vendor and steadily

increasing our business at these companies through differentiated offerings that deliver superior choice, value and

innovation.

10 Gigabit Ethernet:

Catalyst for Ethernet Growth

BROCADE 10 GbE

CUSTOMERS

•

AMS-IX

•

Etex

•

DigiPlug

•

Kaohsiung City Government

•

Maximum ASP

•

Melbourne Internal Medicine Associates

(MIMA)

•

Reliance BIG Animation

•

Shaw Studios

•

South Carolina Federal Credit Union

•

University of London Computer Centre

•

University of São Paolo

•

West Chester University

Leading companies and organizations choose Brocade

Source: Dell’Oro

Group

STRATEGIC PARTNERS

•

EMC as Ethernet product reseller

•

Signed up 50+ global distributors

and VARs in Q2

MARKET GROWTH

Historical and Predicted 10 GbE

Switch Port Shipments (000’s)

Brocade Q2 FY 2010 Earnings

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Increasingly, demand for our high-performance 10 GbE

products is a common theme among many of these new accounts.

Indeed, our 10 GbE

leadership was a primary factor in Brocade winning many of the Ethernet deals we announced in Q2. I

would like to cite two examples:

•First, the Amsterdam Internet Exchange (AMS-IX), one of the world’s largest Internet exchange points, deployed 10 GbE

technology through the Brocade MLX solution to increase network stability and resilience as well as to better meet the

growing demand for bandwidth caused by exponentially rising traffic volume

•Second, Melbourne Internal Medicine Associates (MIMA), one of the largest and most comprehensive independent

physician groups in Florida, deployed an end-to-end Brocade network with 10 GbE

technology, successfully reducing the

time to process and run medical applications by more than 90 percent. MIMA’s

physicians are now empowered with 24×7

real-time access to patient medical records, reducing unnecessary travel and courier time to deliver confidential

information.

End-user demand for 10 GbE

is further validated by third-party research, which indicates that this technology is the

catalyst for growth in the Ethernet switching market overall, as

that market bounces back in 2010 compared to a down

year in 2009. Fueling the demand in particular is the adoption of 10 GbE

in large enterprise data centers to support the

performance and efficiency requirements of server virtualization. We believe that this trend aligns well to our strengths in

two key areas:

•Our heritage and expertise in data center networking

•The high-performance, ultra-high reliability and industry-leading density characteristics of our switching and server

connectivity portfolio

In fact, earlier this month, EMC and Brocade announced the expansion of our partnership to include EMC’s reselling of

Brocade 10 GbE

products, which signals end-user demand for high-performance solutions. I will provide more details on

this and other activity in my OEM update later in my remarks.

Highest Q2 SAN

Business Sell-Through

in Company History

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

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Moving onto our SAN business, healthy end-user demand led the way as the overall Fibre

Channel total addressable

market rebounded back to 2008 levels (refer to next slide). As we expected, Q2 revenue was down sequentially and year-

over-year, on more-than-normal seasonal declines, as a result of our OEMs operating on lower inventory levels this

quarter. While these levels tend to vary, we are nonetheless encouraged by the pace of sell-through, which indicates

robust demand among end-users. In fact, this was the best-performing Q2 for our SAN business in terms of sell-through

in Brocade’s history.

1.2

2010

2020

Trends Driving Growth in SAN

6.6%

8.4%

January 2010

Forecast

March 2010

Forecast

Source: Forrester, US and Global IT

Market Outlook: Q1 2010, April 9, 2010

$333

$353

2009

2010

Source: Gartner, April 12, 2010

Hardware Spending Growth

Predicted by Gartner

In Billions

Improving US IT Spending

Forecasts in 2010

Source: IDC and EMC, May 10, 2010

Massive Growth in Digital Output

In Zettabytes

(10 with 21 Zeros)

Fibre

Channel Sales Returning

to Record Levels

In Millions

Source: Dell’Oro

Group, March 15, 2010

5.7%

CAGR

36%

Brocade Q2 FY 2010 Earnings

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We believe there are several macro-factors contributing to this positive trend:

•We believe that enterprises are starting to redirect their IT strategies and budgets from cost-containment mode to growth

and business optimization. Recent research from industry analysts points to significantly higher IT spending trends

worldwide as customers begin funding deferred projects or investing in new, strategic IT projects that will create

competitive advantages. For example, Gartner Group is predicting

that spending on hardware alone will grow 5.7%

worldwide this year versus 2009, or to more than $350 billion. Another data point comes from Forrester Research, who is

predicting that the US IT market will experience extremely strong growth of 8.4% in 2010.

•It may be a familiar theme from us, but the demand for storage due to the creation of digital data continues seemingly

unabated. According to IDC, individuals and organizations worldwide will collectively create some 1.2 zettabytes

(10

followed by 21 zeros) in 2010, with that number expected to grow

to 35 zettabytes

in 2020. Furthermore, IDC pointed out

that it does not expect that this explosive growth in storage will be matched by commensurate levels of hiring of IT staff—

meaning that to keep pace, companies will have to increasingly rely on more efficient IT architectures and techniques such

as high-performance storage networking.

•The migration to 8 gigabit Fibre

Channel in both the SAN switching and server connectivity

(network adapters/embedded switches) categories is in full swing. This is driving strong growth in these markets after a

modestly down year in 2009. In fact, the Dell’Oro

Group noted that demand for Fibre

Channel in the latest quarter neared

the record levels that the industry enjoyed in 2008.

•Additionally, a survey of CIOs

from Morgan Stanley indicates that many enterprises expect to increase spending in storage

hardware in the second half of 2010, which is another reason for

optimism.

Looking forward with these trends and our own partner and customer data points, we expect to maintain strong results

from our SAN business as we head into more favorable seasonality

in this

market.

OEM Updates

Ethernet

SAN

Brocade Q2 FY 2010 Earnings

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I wanted to provide a few updates on our OEMs, who are the primary route-to-market for our SAN business but are evolving

to become complete, end-to-end networking solutions providers by also reselling server connectivity and Ethernet products.

Dell is executing to plan in becoming a complete, end-to-end networking provider of Brocade products. Brocade and Dell are

continuing to innovate on next-generation data center solutions that will offer customers diverse computing, storage and

networking options.

EMC is also on track to become an end-to-end networking provider of Brocade products. This month, EMC became the most

recent OEM to resell Brocade Ethernet products, including switches and 10 GbE

converged network adapters. EMC

continues to be a Top-3 partner for Brocade Fibre

Channel products, particularly for directors and backbones.

HP remains a strategic partner for Brocade Fibre

Channel fabric switches. HP has shipped more Fibre

Channel ports for

Brocade than any other company.

IBM continues to build momentum as a provider of Brocade Ethernet products. While the ramp has not yet met our joint

expectations, we remain optimistic

that IBM will become an important and productive go-to-market route.

The evolution of these companies from Fibre

Channel OEMs to complete networking solutions providers indicates the

integral nature of networking in today’s IT architectures. Our stated strategy is to work with many partners to offer customers

complete solutions based on open, standards-based technologies. Nowhere in IT is this more relevant than inside the data

center, spurred on by trends such as the growing reliance of server virtualization, which I will cover next.

Brocade Simplifies

Virtualization

Virtualization Is

Creating Network

Complexity

Virtualization Is Creating Network Complexity

Brocade Virtualization

Solutions

•

Brocade 8000 FCoE

Switch

•

10–24 FCoE

Blade

for Brocade DCX

Backbone

•

1010/1020 Converged

Network Adapters

•

Server Application

Optimization

•

Brocade Application

Resource Broker

Brocade Q2 FY 2010 Earnings

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New

industry-

changing

technologies

to be unveiled

at Technology Day

For more information

visit: BRCD.com

For Analysts:

IR@brocade.com

For Press:

PR@brocade.com

It is clear that the continued adoption of server virtualization

among enterprises is an important catalyst of growth

for the entire IT industry. In fact, we are now seeing indications of virtualization impacting higher-tier servers and

applications in the core of large enterprise data centers. This is an important trend for data center networking

providers such as Brocade. While virtualization has delivered certain cost efficiencies, it has actually created

further complexity to IT/data center architectures. Remedies for

this are highly efficient, high-performance and

ultra-highly reliable networking solutions as access from virtual machines to data and storage becomes

paramount.

Brocade has long recognized this need and has been engineering networking solutions that are optimized for use

with virtualization. Since 2009, our FCoE

(Fibre

Channel over Ethernet) solutions—such as the Brocade 8000 FCoE

Switch, 10-24 FCoE

Blade for the Brocade DCX Backbone and our 1010/1020 Converged Network Adapters—

have been among the leaders in this trend. Last year, we introduced server application optimization technology,

which provides network administrators unprecedented levels of visibility into virtual environments from their SANs.

And most recently, we introduced the Brocade Application Resource Broker for the Brocade ADX Layer 4-7

application delivery products to improve visibility in and control over virtual environments from the network at an

application level.

I recently met with 250 global channel partners and 25 of EMEA’s

top CIOs, who are applauding our solutions that

offer simplicity and cost savings to networking customers. Their

message is clear—they cannot deal with the

complexity that is happening, especially given the increased volume in data, traffic and applications. More and

more, Brocade is considered a trusted advisor as they look for a

better alternative to their current network vendor.

According to Gartner, there will be $170 billion wasted on the wrong networking technologies this year. CIOs

and

partners are turning to us because they cannot afford to bet on the wrong horse in this

networking race.

Looking forward, Brocade will introduce more exciting networking

innovations that address the needs created by

virtualization. In fact, we will be hosting our annual Technology Day on June 9 in New York, where we will discuss

many of these innovations in much greater depth. Financial analysts who have not received an invitation to attend

in person should contact our IR department at ir@brocade.com. Industry analysts and trade and business media

should contact our PR department at pr@brocade.com .

Other Notable Achievements

Source: San Francisco Business Times, Silicon Valley/San Jose Business Journal, April 30–May 5, 2010

Ranked best place to work

in the Bay Area

New campus

Move-in began April 30

Brocade Q2 FY 2010 Earnings

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Turning to other company highlights, I am extremely proud that Brocade has been recognized as the best place to

work in the Bay Area by the publishers of the Silicon Valley Business Journal

and the San Francisco Business Times

in this year’s survey of companies with more than 1500 employees. Brocade made it to the top of this list because

of the enthusiasm, strong work ethic, creativity and teamwork of

our talented workforce. Coming on the heels of the

recognition by Fortune Magazine

as one of the “100 Best Companies To Work For”

in all of America, it is clear that

Brocade is an employer of choice for talented people who want to

enjoy long, rewarding careers. Such recognition

will be important in attracting new top talent, which will be instrumental to our long-term growth strategy.

Finally, we are also excited about the fact that our move to our

new, energy-efficient campus in North San Jose is

now underway until its expected completion in late July. Besides

being a home for nearly 2000 Bay Area employees,

we expect this campus to be a showcase for our industry-leading networking solutions as well as a model for next-

generation data center design and implementation.

Q2 Summary

Q2 highlights include:

•

Strong rebound in Ethernet

Federal business

•

Implementation of Ethernet

growth initiatives outlined in Q1

•

Historic end-user demand for

Brocade SAN products in Q2

and recovery of Fibre

Channel

market in general

•

Brocade: THE best place to work

in the Bay Area

Solid results fueling optimism

Brocade Q2 FY 2010 Earnings

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Q2 was a solid quarter as we executed well on our strategy of maintaining operational discipline while investing in a highly

diversified business model across technologies and geographies.

Q2 highlights included:

•A

rebound

our

Ethernet

products

revenue

with

34%

growth

sequentially

and

growth

year-over-year,

fueled

strong

recovery of our Federal business, which grew 161% sequentially, and by strong demand for 10 GbE

products

•Implementation of the many business initiatives we first outlined in Q1 that we believe will help grow our Ethernet business to

meet and exceed our expectations. In the quarter we also ramped up our net-new Ethernet accounts to almost 1000

customers, which meets our FY 10 goal almost two quarters early

•Robust end-user demand for our SAN products driven by continued migration toward 8 gigabit technology and the growth of

the Fibre

Channel market near the record levels the industry enjoyed in late 2008

•Brocade being recognized as the best place to work in the Bay Area, following on the recognition of Brocade being one of 100

best companies to work for in all of America

Looking forward, we are committed to driving shareholder value by growing our core businesses while ensuring that we invest

appropriately in future innovation that will address the emerging IT requirements created by technologies such as virtualization.

We will provide a detailed update of the progress we are making in these future initiatives at our Technology Day in New York

on Wednesday, June 9.

Q2 FY 2010 Financials

Richard Deranleau, CFO

Brocade Q2 FY 2010 Earnings

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Prepared comments provided by Richard Deranleau, CFO

Q2 Financial Highlights

Revenues

•

Ethernet revenue grew 34% Qtr./Qtr.

•

Strong Federal sector and Americas region

•

Strength in SAN sell-through

Profitability

•

Operating profit of 20.5% within long-term model (20–23%)

•

Non-GAAP EPS* of $0.13 (ahead of consensus by $0.02)

Reducing debt

•

Paid off $173M McDATA

convertible debt

•

Additional $24M non-mandatory debt payments

Balanced model, high margins, and highly variable cost structure

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

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Brocade executed well in our seasonally soft fiscal Q2 and saw broad strength across our product lines. We saw

particular strength in Ethernet revenues, the Federal sector and

Americas region, as well as end-user demand (sell-

through) for our SAN products. Earnings per share, both non-GAAP and GAAP, came in strong. I will expand on all these

points in my remarks today.

Key Financial Metrics

Strong profitability

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Revenue

$506M

$493M

$522M

$539M

$501M

Sequential growth

17.3%

(2.6)%

5.8%

3.4%

(7.1)%

Year-over-year growth

42.7%

34.9%

30.9%

25.0%

(1.1)%

Non-GAAP gross margin*

56.2%

58.2%

59.5%

59.3%

56.7%

Non-GAAP operating margin*

18.8%

20.3%

22.7%

26.0%

20.5%

Non-GAAP EPS*—diluted

$0.11

$0.12

$0.15

$0.19

$0.13

GAAP EPS—diluted**

($0.17)

($0.06)

$0.07

$0.11

$0.05

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

** Note: Adjusted due to new accounting standards relating to convertible debt instruments

Brocade Q2 FY 2010 Earnings

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Turning first to revenues, Q2 ended at $501M, which was down 1.1% year-over-year and down 7.1% sequentially off a

seasonally strong Q1. Our Q2 performance was at the high-end of our expectations for this quarter, a range of 7 to 10% down

sequentially, as discussed in our Q1 earnings call.

The highlight of the quarter was the growth of our Ethernet product revenues, which were up 34% sequentially driven by

strength in our Federal business and the Americas region. On a revenue recognition basis, SAN revenue was down 4% year-

over-year and down 20% sequentially as OEMs reduced their inventory levels.

Non-GAAP Gross Margins of 56.7% were slightly below the 2010 guidance of 57-58% that we provided in our Q1 earnings

conference call. This decrease reflects the revenue contributions from a more diversified product mix, especially from our

Ethernet products driven by the healthy rebound in this part of our business.

Non-GAAP Operating Margins of 20.5% were lower than those of the prior quarter, which were very strong at 26.0%, but still

within our long-term model of 20-23%. This quarter’s operating margins show our ability to manage the business effectively

even when gross margins dip below our long-term model.

We repaid the McDATA

convertible debt of $172.5M during the quarter as well as $29.7M of our senior secured debt, of

which $24.0M was in excess of the mandatory amount due. Total diluted shares decreased during the quarter by

approximately 15M. The decrease was attributed to the repayment of the McDATA

convertible debt; repurchase of $20M of

stock during the quarter; and decreased dilution from outstanding options and equity awards.

Revenue: SAN, Ethernet, and Global Services

58%

65%

56%

25%

24%

25%

18%

26%

17%

18%

17%

18%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Global

Services

Ethernet

SAN

Ethernet products increased to 26% of total revenue

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

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Turning to revenues by business unit, SAN represented 56% of revenues in Q2 versus 65% in Q1. End-user demand for Brocade’s

leading SAN products remains very strong and was the highest for

any Q2 in the history of the company. As a reminder, Brocade

recognizes revenue based on sell-in to our OEMs, principally on SAN and our direct sales, and on a sell-through basis for our

distributors and value added resellers on both Ethernet and SAN.

The

migration

Gig

Fibre

Channel

continues

important

technology

trend

for

our

customers

and

for

the

Fibre

Channel

market

large.

technology

leader,

Brocade

was

first-to-market

with

both

and

Gig

products

and

leading

the

transition

today.

Our

revenue

that

identify

Gig

grew

78%

versus

66%

both

our

directors

and

switches

product

lines.

Our SAN ASP sequential declines were in the low single digits.

Our Server product group, consisting of embedded switches, CNAs, HBAs, and mezzanine cards, posted revenues of $40.4M,

which

were

32%

year-over-year

and

down

12%

off

our

record

Q1.

Embedded

Switches

were

down

sequentially

while

CNAs,

HBAs

and mezzanine cards collectively were up almost 50% sequentially. Overall, Q2 was the second highest Server revenue

quarter for Brocade in our history.

Our

Global

Services

business

represented

18%

revenues,

versus

17%

Q1.

Global

Services

revenues

grew

year-over-year

and 1% sequentially.

Total Ethernet Revenue

Highest Ethernet total revenue since Foundry acquisition

$125.5

$118.7

$128.4

$95.4

$128.1

$26.2

$29.8

$22.6

$29.2

$28.6

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Support

Products

$151.7

$148.5

$151.0

$124.6

$156.7

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

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Our Ethernet products revenue was $128.1M in the quarter and showed significant improvement by growing 34% sequentially

and 2% year-over-year. Ethernet products revenues represented 26% of total revenues versus 18% in Q1.

The Ethernet business strength was broad-based across all technology segments and multiple regions. In terms of segments,

Federal was up 161%, Service Provider up 74% while Campus LAN revenues grew 16%. In terms of regions, Americas was strong

with 32% revenue growth sequentially.

Ethernet ASP sequential declines were in the low to mid-single digits.

Q2 was our highest revenue quarter for our Ethernet business since we acquired Foundry, including both products and support

revenues. We are also generating momentum in our indirect routes

to market for our Ethernet products, having added 100 global

distributors and value added resellers thus far in FY10.

Revenue: 10% Customers,

Other OEM, Channel/Direct

43%

46%

54%

44%

19%

17%

19%

17%

19%

38%

37%

35%

29%

37%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Channel/Direct

Other OEM

10% Customers

Growing channel and direct business

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We had three customers that each contributed revenues greater than 10% of total revenues. Collectively, these

three companies contributed 44% of revenues in Q2 versus 54% in Q1. Other OEMs were 19% revenues in Q2

versus 17% in Q1 and channel and direct were 37% of revenues in Q2 versus 29% in Q1. The primary driver of

the improved customer mix shift was the strong performance of our Ethernet sales.

Domestic and International

Reported Revenue

Reported revenue on a ship-to basis

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31%

36%

37%

35%

69%

64%

63%

65%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Domestic

International

Turning to our geographies: As reported, on a ship-to basis, the US was stronger than expected and represented 65% of

revenues in Q2, compared to 63% in Q1.

Segment Revenue and

Gross Margin Snapshot

Q1 vs. Q2 revenue mix and non-GAAP gross margin

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

Q1 10

Q2 10

Revenues by Segment ($M)

Non-GAAP Gross Margin

by Segment*

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$354

$95

$90

$282

$128

$91

SAN

Ethernet

Global Services

66.2%

44.9%

47.6%

65.2%

43.5%

49.1%

SAN

Ethernet

Global Services

Gross margins, on a non-GAAP basis, were 56.7% up approximately 50 basis points year-over-year and down

approximately 260 basis points quarter-over-quarter. The sequential decrease in gross margin was primarily driven by

the higher percent of Ethernet revenue which carries a lower gross margin than our SAN business.

Global

Services

margins

were

49.1%

versus

47.6%

Q1,

the

latter

quarter

experiencing

one-time

charge

the

services

supply

chain

which

had

impact

Q2.

Operating Expenses and Margins

Margins in-line with our long-term model, despite investments

37.4%

37.8%

36.9%

33.3%

36.2%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Non-GAAP Operating Margins*

Non-GAAP Operating Expenses*

as a Percentage of Revenues

Long-term model operating expense range: 38–39%

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

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18.8%

26.0%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

20.3%

Long-term model operating

margin range: 20–23%

22.7%

20.5%

While we began increasing our investment in sales resources, we continued to work on controlling operating expenses in

non-sales functional areas. Total operating expenses were 36.2% of revenues in Q2 versus 33.3% in Q1 on a non-GAAP

basis. Operating expenses were better than our long-term target model of 38% to 39% of revenues. The increase in

operating expenses reflects the investment in our sales organization.

Non-GAAP operating margins decreased on a sequential basis to 20.5% in Q2 from a seasonally very strong Q1 of 26.0%,

due to our product mix shift to Ethernet products as well as our

investment in our sales and marketing resources. Non-

GAAP operating margins were within our long-term model of 20-23% in the quarter.

Balance Sheet and Cash Flow

Highlights as of May 1, 2010

Cash flows enable de-leveraging and reinvestment

* Note: As defined in the term debt credit agreement

** Note: Giving effect to the McDATA

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

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Cash from operations

$107.3M

$16.6M

$155.3M

$69.1M

$67.7M

Campus capital expenditures

$22M

$25M

$28M

$31M

$42M

Operating capital expenditures

$16M

$20M

$17M

$20M

Free cash flow

$69M

($28M)

$110M

$22M

$6M

Cash and equivalents

$237M

$250M

$339M

$328M**

$290M

Debt payments

$75.0M

$33.1M

$57.9M

$506.5M

$202.2M

Senior secured debt

$1.04B

$1.01B

$0.95B

$1.04B

$1.01B

Adjusted EBITDA*

$119.9M

$119.3M

$130.0M

$154.7M

$116.4M

Stock repurchase

–

$20M

Senior secured leverage ratio

1.96x

1.94x

1.87x

1.99x

1.95x

Covenant

2.3x

2.5x

Fixed charge coverage ratio

2.0x

2.2x

2.1x

2.0x

1.9x

Covenant

1.25x

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

Page 24

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Cash from operations was $67.7M. Cash flow in the quarter was negatively impacted from the less linear nature of our

Ethernet business and a material reduction in our Accounts Payable DPO (Days Payable Outstanding) associated with

timing of inventory in our supply chain. Total capital expenditures in the quarter were $62M comprised of $42M for the

campus, which is expected to be completed and occupied during Q3, and $20M for operations. Free cash flow was $6M in

the quarter.

Cash and equivalents were $290M, down from $501M in Q1. As a reminder, our cash balance last quarter reflected

$173M

proceeds

from

the

issuance

our

senior

secured

notes,

which

used

retire

our

McDATA

convertible

debt.

Adjusting for this amount, our cash balance in Q1 would have been $328M. In Q2 we also used an additional $24M to

make a non-mandatory payment against our debt and another $20M to repurchase stock (more details later). While these

factors contributed to lower cash and equivalents in Q2, we believe that they are ultimately positive trends as they reflect

higher confidence and optimism in our business.

Adjusted EBITDA in the quarter was $116.4M, which was down from the record Q1 level of $154.7M. The senior secured

leverage ratio of 1.95x and the fixed charge coverage ratio of 1.9x are both comfortably in compliance with our term credit

agreement.

Rent and Campus Cash Savings

* Note: Excludes furniture and equipment lease payments

Estimated

FY 2010*

Estimated

FY 2011*

Estimated

Total Cash

Saving Yr./Yr.

Campus capital expenditure

$125

$117

Rent expense

$22

$14

Cash impact of new

campus

$147

$16

$131

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

Page 25

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One factor that we expect will improve our cash flow is the completion of our new campus, which will result in savings of

capital expenditures and expenses from rent.

Net Debt:

Defined as Total Debt Less Total Cash

Brocade Q2 FY 2010 Earnings

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Page 26

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$1,073

$975

$929

$782

$713

$725

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Since acquiring Foundry last year, Brocade has steadily reduced net debt, defined as total debt less total cash and

equivalents. Net debt has declined from $1.073B at the end of Q1

2009 to $725M at the end of Q2 2010, a $348M

reduction.

Brocade’s restructured debt allows us to repurchase stock. Brocade repurchased $20M of stock in Q2 which was

approximately 3.5M shares. Brocade has authorization to repurchase up to $394M in stock and will repurchase stock

on an opportunistic basis.

Selected Metrics

* Note: Return on Equity = Non-GAAP net income /total stockholders equity

Please see Non-GAAP reconciliation in appendix

Brocade Q2 FY 2010 Earnings

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Return on Equity*

2.9%

3.3%

4.2%

5.0%

3.3%

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Annualized Inventory Turns

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Days Sales Outstanding

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Days Sales Outstanding (DSO) was 54 days, up from 47 days in Q1,

reflecting the less linear nature of our Ethernet business.

Inventories turned 12 times versus 13 times in Q1. Lower turns are attributed to lower SAN product revenues.

FY 2010 Planning Assumptions

IT market conditions

•

Increasing IT spending, driving higher SAN and Ethernet

networking spending

ASP trends

•

Low to mid single-digit declines in SAN pricing

•

Mid single-digit declines in Ethernet pricing

Taxes

•

Improved during the year due to discrete items in 1H,

assuming no change to geographic or segment mix,

and the extension of the investment tax credit

Improving IT spending

Brocade Q2 FY 2010 Earnings

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Now, as we look forward, here are some assumptions to consider in developing your

financial models:

•As expected, we have seen improvements in IT spending and end-user demand environment for SAN and Ethernet

Networking spending. We believe that the recovery will continue and that in the second half of 2010, IT spending growth rates

in our markets will be at or better than historic seasonal norms.

•We expect quarterly ASP declines on the SAN side to remain in the low to mid-single digits. Declines on the Ethernet side are

expected to be in the mid-single digits.

FY 2010 Financial Outlook

As of May 20, 2010

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

** Note: Equates to FY 2010 Revenues ranging from $2.1B to $2.2B

Revenue growth

8–12% over FY 2009**

Non-GAAP gross margin*

57–58%

Non-GAAP operating expenses*

35–36%

Non-GAAP operating margin*

In model

Non-GAAP tax rate*

24–25%

Fully diluted shares outstanding

490M–500M

Non-GAAP EPS*

$0.58–$0.61

Operating cash flow

$325M–$350M

Operating capital expenditures

$80M–$85M

Campus capital expenditures

~$125M

Free cash flow

$120M–$140M

Brocade Q2 FY 2010 Earnings

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Given these considerations, we expect:

•Full fiscal year 2010 revenue growth to be in a range of 8–12% year-over- year ($2.1 to $2.2B)

•Non -GAAP gross margins for the full year to be between 57% –58%

•Non -GAAP operating

expenses for the full year to be between 35–36%

•Non -GAAP operating margins to be in model

•An annual non-GAAP tax rate ranging from 24–25%

•Annual diluted shares outstanding to be in a range of 490M to 500M shares

•Non -GAAP EPS to be in a range from 58 to 61 cents; up from our Q1 outlook of 54 to 58 cents

•Annual operating cash flow of $325M to $350M

•Annual operational capital expenditures of $80M to $85M

•Annual campus capital expenditures of approximately $125M

•Annual free cash flow of $120M to $140M

•Q3 revenue to be in the range of flat to slightly up

Financial Summary

Richard Deranleau, CFO

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

Page 30

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From a financial perspective, we had a solid Q2, with better than normal seasonality in our SAN sell-through business and

reestablishing growth in our Ethernet business. In addition, as Mike discussed, we made positive steps in executing our

Ethernet

go-to-market

strategy,

and

our

progress

was

reflected

our

increased

revenues.

We continue to reduce our debt

at a faster rate than outlined by our credit agreement and have repurchased stock under our

stock repurchase program.

We believe that we are well positioned to execute on our strategy and financial model in the second half of the year.

We are looking forward to answering your questions in the Q&A session of our conference call, and to seeing you at our

Technology Day on June 9.

Live Q&A Call

May 20, 2010, 2:30PM Pacific Time

Richard

Deranleau

CFO

John McHugh

CMO

Ian Whiting

SVP WW Sales

Dave Stevens

CTO

Mike Klayko

CEO

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

Page 31

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Prepared comments provided by Steve Coli, Investor Relations

That concludes Brocade’s prepared comments. At 2:30 p.m. Pacific Time on May 20th

Brocade will host a web cast

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

Brocade Q2 FY 2010 Earnings

5/20/10

2010 Brocade Communications Systems, Inc.

Page 32

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Long-Term Financial Model

High margins, strong profitability

* Note: Sources are Dell’Oro

Group, Infonetics

and Brocade estimates

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

Storage

Ethernet

Services

Brocade

Revenue TAM 3-year CAGR*

18.6%

11.7%

12–15%

12–17%

Non-GAAP gross margin**

60–63%

55–60%

45–50%

59–61%

Non-GAAP operating expense**

37–39%

38–40%

20–25%

38–39%

Non-GAAP operating margin**

21–26%

15–22%

20–30%

20–23%

Brocade Q2 FY 2010 Earnings

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Sequential Income Statement* Comparison

Managing to long-term operating model, continuing to invest

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

appendix

Brocade Q2 FY 2010 Earnings

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26.0%

20.5%

15.3%

17.7%

15.5%

16.1%

40.7%

43.3%

2.5%

2.4%

Q1 10

Q2 10

Cost of revenue

Research and development

Sales and marketing

General and administrative

Income from operations

Yr./Yr. Income Statement* Comparison

Margin expansion from operating leverage

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

appendix

Brocade Q2 FY 2010 Earnings

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18.8%

20.5%

17.8%

17.7%

16.6%

16.1%

43.8%

43.3%

3.0%

2.4%

Q2 09

Q2 10

Cost of revenue

Research and development

Sales and marketing

General and administrative

Income from operations

Non-GAAP Gross Margin and Gross Profit

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

Full Qtr.

Foundry

Non-GAAP Gross Profit*

$285M

$287M

$311M

$320M

$284M

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Qtr.

Foundry

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Non-GAAP Gross Margin*

56.7%

59.3%

59.5%

58.2%

56.2%

59.7%

64.1%

61.9%

Long-term model gross

margin range 59–61%

Quarterly Net Income (Loss)

GAAP/Non-GAAP Reconciliation

* Adjusted as a result of adoption of new accounting standard relating to convertible debt instruments

(In Thousands)

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Net income (loss) on a GAAP basis*

(66,093)

(23,494)

32,101

51,095

22,380

Adjustments:

Legal fees associated with indemnification obligations

and other related expenses, net

19,814

(561)

(14,612)

301

277

Stock-based compensation expense

40,111

43,313

35,715

21,523

30,146

Amortization of intangible assets

39,372

35,002

34,950

34,902

30,657

Acquisition and integration costs

2,391

1,450

333

204

–

Loss on sale of property

–

8,783

(47)

Legal fees associated with certain pre-acquisition litigation

–

546

299

Provision for certain pre-acquisition litigation

–

14,335

–

Interest due to adoption of new standard*

1,976

2,030

2,085

2,142

348

Restructuring costs and facilities lease losses

2,329

–

Goodwill and acquisition related intangibles impairment

53,306

–

Income tax effect of adjustments

(46,080)

(2,364)

(32,091)

(25,239)

(21,044)

Non-GAAP net income

47,126

55,376

73,362

94,010

62,734

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Capital Expenditures

Cumulative campus spending: $256M to-date out of $316M* total

* Note: Excludes furniture and equipment leases of approximately

$14M

Brocade Q2 FY 2010 Earnings

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$14M

$13M

$16M

$20M

$17M

$20M

$80M

$23M

$22M

$25M

$28M

$31M

$42M

$5M

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Campus

Operating

EBITDA and Sr. Secured Leverage Ratio

As defined in the term credit agreement

Consolidated Senior Secured Leverage Ratio

Q3 FY 2009

Q4 FY 2009

Q1 FY 2010

Q2 FY 2010

$ Thousand

Actual

Consolidated Net Income

($21,034)

$33,597

$51,095

$22,380

plus

(i) Consolidated Interest Charges

$22,845

$20,681

$22,073

$19,522

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

$20,021

$1,277

(iii) Depreciation and amortization expense

$50,956

$51,486

$51,012

$46,600

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

the Acquisition and the financing thereof

–

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

aggregate amount not to exceed $75,000,000

$1,450

$333

$204

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

Arrangers

$5,840

$2,097

$1,502

$1,084

(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)

(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

$43,313

$35,714

$21,523

$30,146

(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

($561)

$250

724

minus

(i)

Federal, state, local and foreign income tax credits

($6,707)

($840)

(ii)

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

its Subsidiaries for such Measurement Period)

($3,511)

($7,216)

($3,036)

($3,127)

Consolidated EBITDA

$119,319

$129,985

$154,683

$116,442

4 Quarter Trailing Consolidated EBITDA

$518,002

$505,848

$523,861

$520,429

Consolidated Senior Secured Debt

$1,005,909

$948,028

$1,041,483

$1,015,957

Consolidated Senior Secured Leverage Ratio

1.94

1.87

1.99

1.95

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$155

Q2 FY 2010 Cash and Debt Covenant

Strong Adjusted EBITDA* Performance

(In Millions)

Stronger Capital Structure

(In Millions)

Well Within Our Debt Covenant

Cash Balance

(In Millions)

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$120

$119

$130

$116

$531

$518

$506

$524

$520

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Quarter

Trailing 12 Months

1.96

1.94

1.87

1.99

1.95

2.3

2.5

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Senior Debt Leverage Ratio

Covenant

$237

$250

$339

$501

$290

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Ending Cash Balance

1,039

1,006

948

1,041

1,016

441

412

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Total Secured Debt

Term Debt plus Revolver

* Adjusted EBITDA is as defined in the Term Debt Credit Agreement

Q2 2010 Share Repurchases

Amount

Q2 2010 Share repurchases

$20M

3.5M

Prior repurchases

$386M

50.5M

Total repurchases to date

$406M

54M

Company has a remaining authorization of $394M

Brocade Q2 FY 2010 Earnings

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2010 Brocade Communications Systems, Inc.

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Thank You

www.BRCD.com

Brocade Q2 FY 2010 Earnings

5/20/10

2010 Brocade Communications Systems, Inc.

Page 42

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Brocade Communications Systems (BRCD) Inactive 8-KBrocade Reports Fiscal Q2 Results