Brocade Shares Beaten Down After Loss

Shares of storage company Brocade(BRCD Quote) plummeted Friday as investors reacted to the company's first-quarter loss and its ongoing attempts to swallow switch specialist Foundry Networks(FDRY Quote).

The firm's shares lost 31 cents, or just over 9% of their value, to close at $3.07 Friday, outpacing the broader retreat in tech stocks that saw the Nasdaq fall 0.11%.

The San Jose, Calif.-based company, which recently completed its $2.6 billion purchase of Foundry, posted a loss of $26 million, compared to profit of $35.6 million in the same period last year.

Even solid first-quarter revenue, which grew 24% year over year to $431.6 million, did little to soothe jittery investors, as this figure came in well below analysts' estimate of $441.7 million.

Brocade CEO Michael Klayko said the Foundry integration is proceeding ahead of schedule, although analysts warned that a big merger-related question mark still hangs over the storage firm.

"The increased variability in Brocade's business model following its acquisition of Foundry heightens the risks in the story, particularly given the current spending climate," wrote Goldman Sachs analyst Min Park, in a note released Friday.

The analyst acknowledged that the firm's stock has an attractive valuation but warned that Brocade still needs to fully absorb Foundry.

"We do not think the stock will perform until the company begins to deliver on its integration targets, particularly given the leverage on its balance sheet, heading into a period of softer demand," he wrote.

The two firms' product and engineering teams have already finalized a combined roadmap, according to Klayko, and the company expects to keep its operating margin between 19% and 23%.