Thomas Lepri
Updated from 10:08 a.m. ET
Ever so softly, executives at storage infrastructure firms Brocade (BRCD Quote - Cramer on BRCD - Stock Picks) and Network Appliance (NTAP Quote - Cramer on NTAP - Stock Picks) hinted Wednesday that business had bottomed, sending both stocks soaring. In afternoon trading, NetApp was up $4.78, or 19%, to $29.33, while Brocade had risen $7.36, or 17%, to $50.32. Here's why: Brocade CEO Greg Reyes kicked off the Merrill Lynch Hardware Technology Conference in New York by telling attendees that he's comfortable with the company's reduced estimates for the fiscal second quarter. Reyes said, "I think Brocade has positioned itself going into this to meet or exceed expectations for this quarter," referring to the company's fiscal second quarter, which ended last month. Analysts expect it will earn 5 cents a share, according to Thomson Financial/First Call. But don't get too excited. Meeting or exceeding expectations for Brocade's second quarter got a heck of a lot easier last month, when the storage-infrastructure company warned that earnings would come in at 5 cents to 6 cents a share and that revenue would fall 30% from the fiscal first quarter, when it had $165 million in revenue. Prior to that warning, analysts had expected the company would earn 11 cents a share. On the more important question of where things go from here, Reyes spoke vaguely of a possible return of long-deferred spending sometime in the second half of the company's fiscal year. The dynamics of buying storage make it easy for customers to delay new purchases, he said. Customers typically buy considerably more storage capacity than they currently need, which means they can wait before buying more. But they can't wait indefinitely, according to Reyes. "Though they may have delayed at some point, whether in the June or September quarter, they'll have to deploy more storage," he said. NetApp CFO Jeffry Allen displayed a similarly guarded optimism in comments he made to an audience of portfolio managers later Wednesday morning. "I'm not willing to call a trend," Allen said. "But it's my personal belief that we've seen the worst of the uncertainty about capital spending," and that customers are getting close to finishing their budget re-examinations. Allen was echoing comments made Tuesday by NetApp CEO Dan Warmenhoven at the JPMorgan Tech Conference in San Francisco. Warmenhoven had said the company was seeing signs that large customers were assembling plans to deploy new network-storage capacity in the year's second half. Planning, of course, is one thing. But revenue is quite another, and Allen was loathe to suggest that NetApp was booking it notably faster than it has been in recent months. Allen said he expects spending to remain flat in the near-term, with Internet-sector spending, to which the company still has vast exposure, continuing to decline. "Our sales funnel has never been better," Allen said. "It's just frustratingly slow to close." But right now, the mere mention of a bottom is enough for tech investors impatient for a recovery from the recent slowdown in tech spending.
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