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Brocade CEO Michael Klayto resigns amid increased profits

Michael Klayko resigns amid big changes in the storage networking market

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The CEO of Brocade Communications has announced plans to retire from the company, even as the storage networking vendor reported increased profits for the quarter just ended.

Michael Klayko has been CEO of Brocade since 2005. The company didn't say why he decided to leave, but there has been discussion lately about whether Klayko is the right CEO for the company, said Zeus Kerravala, founder and principal analyst with ZK Research.

"Decisions like these are never easy, but I believe it is the right time," Klayko was quoted as saying in a statement.

The storage networking market has changed significantly in the seven years since he became CEO. With the recent growth of software-defined networking, Brocade faces a new wave of competition from both established players and startups.

Klayko has been a good salesman and good at dealing with customers, but those may not be the skills Brocade needs anymore to move forward, Kerravala said.

"He's a sales guy at heart. I think what they need now is someone who's going to bring some aggressiveness and operational discipline to the company," he said.

Brocade has a good customer base and a strong position in storage, Kerravala said, but "the question is, how do you get the Ethernet business moving? That requires a skill set that's a little bit outside of what Klayko had."

Kerravala also noted that Brocade's stock price has been volatile in recent years and has suffered declines during his tenure.

Nevertheless, Brocade didn't have a bad last quarter. Revenue for the three months ended July 28 was $555.3 million, up 10 percent from a year earlier, the company announced Thursday. Earnings per share of $0.09 was up from break-even in the same quarter last year.

Klayko will stay on as CEO until the company finds a replacement, Brocade said. One potential candidate is Vice President and Chief Marketing Officer John McHugh. "He's the guy who took HP's ProCurve business from no share to double-digit share" before joining Brocade, Kerravala said.

But he thinks it more likely the new CEO will come from outside the company.

Klayko's departure could make Brocade a potential acquisition target again, Kerravala said. "When you're thinking about buying a company, one question you always ask is, what can you do with the CEO?" he said.



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