Brocade Communications shares powered 17 percent higher on Friday following a better-than-expected earnings report and positive research from an analyst who believes the company is emerging as a market "gorilla."

After Friday's market close, Brocade shares stood at $152.25, up $22.63 on the day. The San Jose, California-based company's shares have risen sevenfold since its IPO in May.

Paul Johnson, the analyst with BancBoston Robertson Stephens who reiterated a Buy rating on the stock today, says that shares are rising on the prospects for Brocade's storage switches, based on the Fibre Channel networking architecture. The switches enable companies to build storage area networks (SANs), which are networks specifically designed for connecting computer servers to high-capacity storage systems.

"This company has a chance to become what we call a 'gorilla' in the market," wrote Mr. Johnson, who is also a coauthor of The Gorilla Game: An Investor's Guide to Picking Winners in High Technology, a book about how companies win share in emerging markets.

Indeed, the earnings report showed signs of acceleration. For the quarter ended July 31, Brocade reported net revenues of $20.1 million, a 339 percent increase over the $4.6 million reported for the same quarter in fiscal 1998. Net income was $1.6 million in the quarter, a $9.7 million increase over the net loss of $8.1 million reported for the same period a year ago. That translated into six cents of per-share income, improving on the net loss of 46 cents per share for the third quarter of fiscal 1998 and beating consensus estimates for the current quarter by two cents a share.

With the freshly minted earnings, Brocade is now able to sit atop the $65 million it raised in its IPO. It added another $6 million in cash to the balance sheet, giving it a total cash position of $76 million.

SON OF SANBrocade's revenue and earnings growth has been fueled by demand for data storage technologies. By building SANs, companies can offload data storage and backup functions onto a specialized high-speed network that uses Fibre Channel transport technology to shuttle information between servers and storage equipment. Through original equipment manufacturer arrangements, Brocade sells the Fibre Channel storage switches to server and storage equipment vendors such as Dell Computer, Compaq Computer, and EMC.

Now that the company has proved it can earn a profit and build on its strong cash and earnings position, the only question is how easily it will grow into its $4 billion valuation -- which represents an increase of nearly $700 million over the market cap that the company held on Thursday, before earnings were released.

Mr. Johnson attributes his renewed confidence in the company to the solid earnings report, noting that revenues grew an "impressive" 90 percent sequentially and 336 percent year-over-year. "Brocade continues to take market share, with 60 percent of the Fibre Channel systems business, and 36 percent of the overall Fibre Channel market," Mr. Johnson wrote in his report.

MARKET LEADERWith Brocade emerging as the market leader at a time when the market is starting to accelerate, Mr. Johnson believes it will be difficult for its competitors to catch up -- thus giving Brocade "gorilla" status. Brocade's competitors include Gadzoox Networks, another recent IPO, and Vixel.

Brocade's CEO Greg Reyes says he is comfortable with the company's $4 billion valuation. "We're feeling like this is the first days of the SAN market," says Mr. Reyes. "I think we're at the beginning of another cycle here."

Citing IDC figures that put the SAN market at $1.5 billion by the year 2002, Mr. Reyes thinks the company deserves such a valuation as long as it maintains its market lead.

Mr. Johnson seems to agree with Mr. Reyes's assessment of the market. "The Fibre Channel market is accelerating. When things start to accelerate like this, they rarely decelerate," wrote Mr. Johnson.