Storage Stocks Facing Pressure

Updated from March 5

The storage sector faced more pressure Wednesday after McData (MCDT Quote) lowered guidance and EMC(EMC Quote) had its earnings estimates cut by a brokerage.

McData said it expects revenue of $73 million to $78 million in the first quarter, compared with previous guidance of $85 million to $95 million, citing a reluctance among customers to spend. As a result, the company now expects a loss of 2 cents to 4 cents a share, excluding noncash deferred compensation and amortization charges. The company had been expecting to break even, or even post a profit of as much as 2 cents a share.

According to Thomson Financial/First Call, analysts are expecting earnings of 2 cents per share and revenue of $91 million. In the same quarter a year ago, the company earned 8 cents on revenue of $83 million.

Shares of McData fell 21.5% to $12.50 in late-session Instinet trading Tuesday, and other storage sector stocks were feeling the pain. Brocade (BRCD Quote) fell 9.2%, QLogic (QLGC Quote) was down 6.2%, Network Appliance (NTAP Quote) shed 6.9%, and Emulex (EMLX Quote) was losing 7.4%.

EMC was losing 4.1% to $11.08 Wednesday after J.P. Morgan cut its first-quarter earnings estimates to $1.37 billion, or 5 cents a share, from $1.43 billion, or 4 cents a share. The firm maintained a long-term buy rating on the stock. It also cut first quarter estimates for McData and InRange(INRG Quote).

McData said in its release that fourth-quarter revenue was "very strong and reached record levels, which we now believe in part reflected some additional spending to utilize existing 2001 budget authorizations."

"We have been cautiously optimistic about IT spending in 2002, recognizing that the timing of a resurgence in enterprise storage and infrastructure spending would likely be closely tied to a recovery in the economy and a favorable outlook for corporate profits. Thus far in 2002, it appears that this spending is off to a slow start, with larger customers, in particular, taking longer to make major investment decisions. However, our pipeline remains strong and is consistent with our expectations at this point in the year," the company said.

McData will report its first-quarter results on April 17.