STOCKWATCH: Brocade frightens the horses
STOCKWATCH: Brocade frightens the horses
Brocade Systems put a scare through the storage industry on Friday when it warned of revenue shortfalls, cut one in eight staff, and farewelled its president and COO.
The storage networking specialist released quarterly results for the third quarter of 2003 which were within expectations, but the company said its revenues for the January quarter would be down between 18 and 22 per cent, where analysts had expected a mild rise. Instead of continuing its healthy profits, it would barely break even for the quarter, according to executives quoted in a conference call, although chief financial officer Tony Canova said, "We expect this condition to last no more than one quarter."
The company also said it would trim its headcount by 12 per cent to 1,200, and attributed "personal reasons" to chief operating officer Michael Byrd's decision to step down.
Brocade's stock dropped from US$7.28 to hit a new 2.5 year low of US$5.20 before closing on Friday US$2 down at US$5.28. Volumes for the day were five times normal, making it the most traded stock on NASDAQ for the day - and also the biggest percentage loser, at over 27 per cent. The stock has since rebounded to US$5.65.
Speculation as to the facts behind the shortfalls inevitably centred on Cisco Systems, which has signalled its intention to enter the storage networking fray with products shipping next year. Analysts said that customers might be holding off on spending to see what Cisco could come up with.
While Brocade caught a cold, some other vendors sneezed but recovered successfully. Among these were McData, which dropped 5.6 per cent on Friday but has yo-yoed back up to around its previous value. Similarly, Inrange Technologies shaved 24 cents to close at US$2.99 on Friday, but it has not recovered to the same extent, closing at US$3.03 overnight. EMC dropped by 6.6 per cent from US$6.85 to US$6.40, but has shot back up in the aftermath to close at US$7.50.
Emulex was one stock which took a hit on Friday, but it has dropped further on news of a ratings downgrade by Deutsche Securities from Buy to Hold. The announcement on Tuesday cut the stock from US$25.55 to US$23.71, although it recovered on Wednesday to close at US$24.45. While ratings downgrades are never good news, this one may have been a reward for a run on the stock, which has risen from depths below US$8 early in October to more than triple in value. The stock is still merely half of its high point back in January of US$48.17.
In other ratings news, Adaptec was downgraded by analyst firm Robert W. Bairdfrom from Outperform to Neutral, while Needham & Co started McData on a rating of Hold. McData rose four percent by 34 cents to US$8.75, and Adaptec added 17 cents to close up 2.5 per cent at US$7.04.
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