Brocade Reports Fourth Quarter and Fiscal Year 2003 Results

Non-GAAP net income for Q4 03 was $4.6 million, or $0.02 per share, as compared to a non-GAAP net income of $2.0 million, or $0.01 per share, in Q3 03. Non-GAAP net income for Q4 03 excludes gains related to repurchases of convertible subordinated debt, a gain on the disposition of private strategic investments, a reduction of previously recorded restructuring costs, and deferred stock compensation expense related to the acquisition of Rhapsody Networks, Inc. For FY 03, non-GAAP net income was $5.6 million, or $0.02 per share. Non-GAAP net income for FY 03 excludes gains related to repurchases of convertible subordinated debt, net gains on the disposition of private strategic investments, restructuring costs, and deferred stock compensation and in-process research and development expenses related to the Rhapsody acquisition. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

Q4 03 Financial Highlights

    -- Net revenue was $137.8 million, an improvement of three percent
       sequentially from Q3 03
    -- Gross margin increased to 54.6 percent, an improvement from 54.1
       percent in Q3 03
    -- Non-GAAP operating income increased to 4.0%, an improvement from 1.5%
       in Q3 03
    -- Non-GAAP earnings per share (EPS) increased to $0.02, an improvement
       from $0.01 in Q3 03
    -- Cash flow from operations increased to $17.0 million, an improvement
       from $6.7 million in Q3 03, reflecting the 17th consecutive quarter of
       positive operating cash flow
    -- Cash and investments in Q4 03 total $835.6 million
    -- Day sales outstanding were 50 days, an improvement from 52 days in Q3
       03

Reporting on a Generally Accepted Accounting Principles (GAAP) basis, net income for Q4 03 was $14.8 million, or $0.06 per share. This compares to GAAP net income for Q3 03 of $1.9 million, or $0.01 per share, and GAAP net income for Q4 02 of $15.7 million, or $0.07 per share. For FY 03, GAAP net loss was $136.2 million, or $(0.54) per share, as compared to GAAP net income of $59.7 million, or $0.25 per share, reported in FY 02. There was no difference between GAAP and non-GAAP net income in Q4 02 or FY 02.

During Q4 03, Brocade purchased on the open market $107.1 million face value of its two percent convertible subordinated notes. Brocade paid an average of $0.88 cents on each dollar of face value for an aggregate cash purchase price of $94.4 million, which resulted in a pre-tax gain of $11.1 million. These repurchases will reduce future quarterly interest expense and related amortization by approximately $0.7 million. As of October 25, 2003, the remaining convertible debt outstanding was $442.9 million.

"2003 has been a transformational year for Brocade and I'm pleased to report another solid quarter with continued improvement in revenue, gross margin, operating income and EPS," said Greg Reyes, Brocade Chairman and CEO. "The actions we have taken over the last several quarters have significantly improved our business model and organizational structure, strengthened our management team, and refined our product strategy, positioning us well for 2004."

Brocade also announced today that it has purchased a building located at its San Jose, California, headquarters for $106.8 million in cash. The 194,000 square foot facility, which houses a portion of the Company's engineering organization and development, test and interoperability laboratories, was previously leased. In the first quarter of fiscal year 2004, Brocade will record a non-recurring charge of approximately $75 to $85 million primarily related to lease termination, facilities consolidation and other associated costs. As a result of this transaction, Brocade expects to reduce its annual operating expenses by approximately $4 to $6 million.

    Q4 03 Business Highlights

    -- IBM qualified FICON support on the Brocade SilkWorm 12000 Director for
       IBM mainframe environments. Support for FICON extends connectivity
       options, enabling Brocade end-users to connect IBM mainframes to
       Brocade-based storage area network (SAN) environments, allowing them to
       consolidate and leverage training, SAN management, and equipment across
       both open systems and mainframe environments.
    -- Announced general availability of SilkWorm Fabric Application Platform
       (SilkWorm Fabric AP) to OEM and software developer partners. The
       SilkWorm Fabric AP is the industry's first intelligent switching
       platform designed to host SAN fabric-based storage management
       applications-such as volume management, data migration, and data
       replication. Leading Brocade OEM partners including HP and EMC, and
       more than ten software developer partners, including VERITAS, have
       already selected the SilkWorm Fabric AP for developing next-generation,
       fabric-based storage management applications.
    -- Announced a unique set of multiprotocol fabric routing services that
       extends the functionality, scalability, and versatility of today's
       SANs. The fabric routing services will be delivered on the SilkWorm
       Fabric AP and will allow customers to logically consolidate and scale
       SANs, and seamlessly extend SAN functionality and benefits over
       multiple networks and across greater distances. The new multiprotocol
       fabric routing services include:

       -- Fibre Channel-to-Fibre Channel routing to consolidate and scale
          separate SAN islands into Logical Private SANs which offer the
          highest levels of configuration flexibility and system availability
          with the lowest risk and complexity for the end-user.
       -- iSCSI-to-Fibre Channel bridging for attaching low cost,
          Ethernet-connected hosts to the Fibre Channel SAN fabric via the
          iSCSI protocol.
       -- Fibre Channel to FC-IP translation, in order to extend existing
          Fibre Channel SANs over distance via IP networks.

    -- Expanded the strategic alliance with CNT in which Brocade will
       recommend the CNT Ultranet Edge Gateway as a solution for extending
       Brocade Fibre Channel SANs over distance. More than 300 mutual CNT and
       Brocade customers have already deployed this solution, which is
       designed for mission-critical, highest-performance applications that
       require metro and wide area network connection.

The non-GAAP, formerly pro forma, information provided in this press release is a supplement to, and not a substitute for, our financial results presented in accordance with GAAP. The non-GAAP results exclude certain expenses and income to provide what we believe is a more complete understanding of our underlying operational results and trends. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding the gain related to repurchases of our convertible subordinated debt, net gains on the disposition of private strategic investments, certain expenses relating to our acquisition of Rhapsody, and the restructuring of business operations that we believe are not indicative of our core operating results. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting of future periods. Brocade management refers to these non-GAAP financial measures in making decisions regarding operational performance and to facilitate internal comparisons to historical operating results and to competitors' operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

About Brocade Communications Systems, Inc.

Brocade offers the industry's leading intelligent platform for networking storage. The world's leading systems, applications, and storage vendors have selected Brocade to provide a networking foundation for their SAN solutions. The Brocade SilkWorm(R) family of fabric switches and software is designed to optimize data availability and storage and server resources in the enterprise. Using Brocade solutions, companies can simplify the implementation of storage area networks, reduce the total cost of ownership of data storage environments, and improve network and application efficiency. For more information, visit the Brocade website at www.brocade.com or contact the company at info@brocade.com.

Cautionary Statement

This press release contains forward-looking statements, as defined under Federal Securities Laws. These forward-looking statements include statements regarding the company's future revenue, operating expenses, earnings, profitability and business prospects, and statements regarding the company's non-recurring charge and expected operating expense reduction as a result of the purchase of a building located at the company's San Jose, California headquarters. These statements are just predictions and involve risks and uncertainties, such that actual results may differ significantly. These risks include, but are not limited to, quarterly fluctuations in our revenues and operating results; the effect of changes in IT spending levels; the effect of competition, including pricing pressure; our dependence on OEM partners; declines in the prices of our products; our ability to develop new and enhanced products that achieve widespread market acceptance; our ability to manage the transition between new and older products; risks associated with international political instability; our failure to manage expansion effectively; our failure to adequately anticipate future OEM and end-user product needs or to accurately forecast end-user demand; risks associated with increased international sales activity; our failure to manage distribution channels, inventory levels and relationships; the loss of our third-party contract manufacturers; our dependence on sole source and limited source suppliers for certain key components including ASICs, microprocessors, logic chips and programmable logic devices; the existence of undetected errors in our products; risks related to our acquisition of Rhapsody; and possible fluctuations in future expenses. These and other risks are set forth in more detail in the Company's reports on Form 10-Q for the fiscal quarter ended July 26, 2003 and on Form 10-K for the fiscal year ended October 26, 2002. Brocade expressly assumes no obligation to update any such forward-looking statements.

NOTE: Brocade, the B weave logo and SilkWorm are registered trademarks of Brocade Communications Systems, Inc. or its subsidiaries in the United States or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners. All products, plans, and dates are subject to change without notice.

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Brocade Communications Systems
Paul Trowbridge
Tel: +44 (0)118 965 3789
E-mail: ptrowbri@brocade.com