Brocade Communications Systems, Inc. (NASDAQ: BRCD) has already been seeing severe weakness with the market downturn. In part it was because Dell Inc. (NASDAQ:DELL) appears to be no real acquirer of the company as many pundits had previously hoped. The rest is that larger peers like Juniper Networks, Inc. (NYSE: JNPR) and Riverbed Technology, Inc. (NASDAQ: RVBD) have followed Cisco Systems, Inc. (NASDAQ: CSCO) down the path of slowing business. This morning came word that things are weakening just as the share decline had been telling you to worry about.
The warning is not exactly awful nor is it the end of the world, but a severe slowing and even a contraction is being seen here. Brocade is often considered the lower cost alternative, which implies that businesses are just pushing out orders rather than moving to lower cost alternative to Cisco and other vendors.
The warning puts quarterly revenue in the range of $500 to $505 million versus a prior target of $540 to $560 million on flat year-over-year sales; earnings per share was put in a range of $0.08 to $0.09 EPS on a non-GAAP basis versus a prior $0.10 to $0.11 EPS target.
The Holy Grail of storage is shrinking. Brocade sees $333 to $336 million in storage business sales, down 5% to 6% year-over-year which the company said “reflects a reduction in the third quarter of approximately one-half week of Fibre Channel inventory held at the OEMs” as well as having “experienced weaker-than-expected Storage end-user demand, which was down slightly from the previous quarter.”
The ethernet business grew and sales should be $167 to $169 million in sales for a 12% to 13% gain from a year ago. This is not as solid as planned and Brocade blamed lower than expected Federal sales (austerity) combined with a soft IT spending environment.
Brocade shares were halted for the news after a $4.89 close on Thursday versus a 52-week trading range of $4.64 to $7.30. The beat goes on, but it is a slower beat.
JON C. OGG
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