Updated from May 14

Concerns over increasing competition in the enterprise storage market pushed Brocade ( BRCD) down more than 13% Thursday.

By noon, more than 26 million shares in the company had changed hands, about triple a normal full day's volume. In recent trading, Brocade was off 87 cents, or 13.4%, to $5.64.

On Wednesday, Brocade announced that declining sales and acquisition-related expenses led to a second-quarter loss, and CEO Greg Reyes said certain competitors are entering the market with some very aggressive pricing."

Commenting on the company's results, analyst Jason Adler of Thomas Weisel said: "Future financial (performance) and market share gains will become challenging for the SAN switch leader due to increasing competition from McData and Cisco, in our view." Thomas Weisel has a banking relationship with Brocade.

Net revenue for the April quarter was $130.9 million, compared to $135 million in the same period last year. The company reported a loss of $146 million, or 57 cents a share, according to generally accepted accounting principles.

Pro forma net was a loss of $1 million, or break-even on a per share basis, as expected by analysts polled by Thomson First Call. Revenue was also in line with expectations.

Looking ahead to the third quarter, Reyes said he didn't expect significant changes in the economic climate or the level of IT spending. He said the company expects a pro forma profit of a penny a share (in line with expectations) on revenue ranging from $131 million to $137 million. Analysts were expecting revenue of $137 million.

In April, the company reduced headcount by approximately 9%, the second reduction in as many quarters. The prior cut was about 160 employees, or 12%. "Management is attempting to make good on (its) promise to return the Company to operating margins of between 10% and 15% in the next 30 months," said Steven Berg, who follows the company for Punk Ziegel. (Berg's firm does not have a banking relationship with Brocade.)

Although Brocade is facing a significant competitive challenge from Cisco ( CSCO), which is entering the fibre channel switch market, as well as an upcoming options swap, BRCD had appreciated by 40% in the three months before the earnings announcement -- more than 2 1/2 times the gain of the Nasdaq.

"The appreciation (was) based on the belief that the bad news is largely out on the company and the remaining concerns are largely already reflected in the stock," Lehman Brothers analyst Harry Blount wrote in a note to clients. (Lehman has no banking relationship with Brocade.)

One of those concerns is the options swap. On Jan. 8, Brocade canceled 58,070,190 out-of-the-money options. The company expects to replace the canceled options with 29,571,679 new options on July 10. The new options will have a strike price much closer to the prevailing market price, Blount said.