SAN JOSE -- Despite recurring reports that his board has been looking for a buyer, the new CEO at Brocade Communications Systems said Friday that he'll pursue a software-based strategy to challenge networking giant Cisco Systems (CSCO) and other commercial tech rivals.

"I was looking for a company that has some legs," said Lloyd Carney, a veteran tech executive and entrepreneur who was named to the top job at Brocade this week.

Although he's sold two previous companies, Carney added in an interview that he was hired to build Brocade's business, not "flip" it. Noting that he spent several years at each of his last two firms, he said Brocade's board "assured me that I will have the opportunity to create proper shareholder value" for the long term.

Analysts say the software strategy outlined by Carney is a smart one, but he'll face stiff competition. With $2.2 billion in annual sales and about half its 4,000 employees based in Silicon Valley, Brocade is one of several smaller players in a global market where Cisco dominates and other tech giants like Hewlett-Packard (HPQ) and even Oracle (ORCL) are looking to carve out a share.


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Emphasizing software "gives them a shot," according to Zeus Kerravala, an industry expert at ZK Research. He said the networking industry is approaching a critical transition, as new "virtualization" software offers the promise of increasing the capacity and flexibility of traditional networking hardware -- the routers and switches that carry data between servers in big computer networks and data centers.

"This is a market transition," Kerravala added. "The problem that Brocade is going to have is that every mainstream vendor recognizes it. Every big vendor has a software strategy and there's also 10 startups that do, too."

Carney faces other challenges as well. Market growth is slowing in what has long been Brocade's core business, selling a specialized technology known as "Fibre Channel" to connect server computers with data storage systems. Brocade dominates the market for those products, which provide a stable revenue stream for the company, but analysts say customers are gradually shifting to other alternatives.

In recent months, news reports citing unnamed sources have said the company's board was actively looking for a buyer.

Carney, 50, said the Fibre Channel business is still healthy, but he acknowledged "it's not growing as rapidly." As a result, he said, Brocade will redouble its efforts to compete directly with Cisco and other suppliers of the more widely used "Ethernet" networking technology.

"The future for Brocade is in focusing on growth customers," he said. "Growth is coming from people who are building new data centers and providing cloud computing services. Those data centers are going to look very different from the data centers of yesterday."

Industry analysts praised Carney's hiring this week, while saying the company's outlook remains mixed. Citing his success in selling other companies, some suggested Brocade's board might be hoping for a quick repeat performance. Kerravala, however, said Carney's strategy could make Brocade more valuable if he's given time to pursue it.

Brocade's stock has risen slightly less than 1 percent since the new CEO was named Monday; shares closed Friday at $5.64.

Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.

brocade communications
Headquarters: North San Jose
Employees: 4,000 worldwide, including 1,900 in Silicon Valley
Earnings: $195 million net income on $2.2 billion revenue in fiscal 2012
Business: Storage and IP networking products and services
Founded in 1995; initial public offering in 1999
Source: Brocade.