Apart from using it as a tether ball in pieces talking about rumored M&A in the tech sector, there aren't many sell-side analysts who seem to have much use for Brocade (Nasdaq:BRCD). Certainly some of this skepticism has been earned by the company through years of sub-optimal execution, not to mention the fact that the company goes up against major rivals like Cisco (Nasdaq:CSCO). That said, even minimal growth expectations point to real value here and patient investors (with an especially high frustration threshold) may want to consider the stock.

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Closing the Year Strong
In a quarter where the predominant theme among tech stocks has been disappointment and miss-and-lower reports, Brocade's performance is pretty strong by comparison.

Revenue rose 5% from last year and 4% from the fiscal third quarter, with product revenue up 7% and 5%, respectively. Overall SAN revenue increased 10% from last year, with product revenue up 12% this quarter on strong 16B and higher director and switch sales. Ethernet switch was so-so, as sales rose 5% from the year-ago level but sequential sales improved 1%, and enterprise sales were down.

Brocade has been repeatedly flogged for weak execution, but for this quarter at least, the margin picture was solid. Gross margin (non-GAAP) improved about two points from last year and a point from the third quarter, with product margin improving by a point. Operating income rose by 12% from last year, with margins expanding on both an annual and sequential basis. It's also worth noting that Brocade isn't skimping on R&D spending or relying upon mass-firings to make numbers.

SEE: R&D Spending And Profitability: What's The Link?

Any Credit Coming?
I know that many analysts don't see much long-term future in the SAN business, but Brocade still grew share from Cisco and QLogic (Nasdaq:QLGC) in fiscal 2012. Likewise, I think it's worth noting that while Brocade counts significant players in the storage industry like EMC (NYSE:EMC), Hewlett-Packard (NYSE:HPQ) and IBM (NYSE:IBM) as 10%+ customers, and all of these companies saw year-on-year storage product revenue declines in the September/October quarter, Brocade logged some solid growth.

Elsewhere, the company is seeing good interest in its Ethernet fabric products and is building up its software-defined networking (SDN) capabilities. Time will tell if Ethernet fabrics are in fact a good foundation for SDN deployments, but the company's partnerships with leading SDN players like VMware (NYSE:VMW) (more specifically, Nicira) and BigSwitch should be giving the company insight into how that market is developing. Regrettably, management didn't offer up many details on its Vyatta acquisition, but acquiring an SDN operating system developer does make sense.

That said, I'm not holding my breath to see analysts really run with this story. Cisco just paid more than a billion dollars for Meraki, and Brocade is going to have to prove that it has a workable plan for competing with companies like Cisco, Oracle (Nasdaq:ORCL) and VMware in the evolving SDN space.

SEE: Evaluating A Company's Management

Plenty Left to Do
The biggest near-term task for Brocade is identifying and hiring a new CEO to replace Mike Klayko. Who Brocade hires will likely say a lot about the direction the company wants to take, to say nothing of where the company sits in the IT food chain. Said differently, can Brocade hire a name that excites investors and forces sell-side analysts to reconsider the company's potential?

Whomever Brocade hires, there's plenty of work to do. The SDN business is still emerging/evolving, and isn't likely to help the company in a big way over the next 12 to 24 months. That means keeping up the momentum in the SAN business and trying to find a path to real growth in Ethernet are still major priorities.

The Bottom Line
Brocade is not an easy name to figure out. The company has struggled to compete with Cisco and Juniper (NYSE:JNPR) in data centers, and hasn't really done a lot better against HP or Dell (Nasdaq:DELL) in the campus environment. On the other hand, the company has logged eight straight years of reported revenue growth and logged some solid free cash flow (FCF).

Brocade reminds me in many respects of the software company, Quest, a company that sometimes struggled with its strategic direction (and growth), but ultimately attracted a decent buyout bid. Even the slightest degree of long-term free cash flow growth points to a fair value above $8, but bears will argue that even that will be out of reach, given the company's positions in SAN and Ethernet. I'm still cautiously optimistic, though, and I think aggressively value-oriented investors should keep an eye on this name, though waiting for the announcement of a new CEO before buying in may be the more prudent move.

At the time of writing, Stephen D. Simpson owned shares of EMC since September 2012.