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Brocade Jumps Ahead of Earnings Report

Data storage fans await the numbers.

Brocade

(BRCD)

shares surged ahead of its third-quarter earnings report later Thursday on renewed enthusiasm for the data storage market.

The company is entering a seasonally strong quarter and has the tailwind of positive comments about data storage device sales from

Cisco Systems

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and

Hewlett-Packard

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.

Also,

Network Appliance

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, which makes storage gear, reported a

rebound in orders from a lull in previous quarters.

Shares of Brocade were recently trading up 28 cents, more than 4%, to $6.92.

Analysts say the company stands to benefit from a trend of connecting storage devices in a network. Brocade's products help to create storage networks by linking storage gear together.

The amount of data flowing over corporate networks and the Internet has swelled, creating a need for more storage. Regulatory mandates such as Sarbanes-Oxley have forced companies to duplicate documents and email. And the popularity of digital music, photos and high-definition entertainment that is delivered on-demand or exchanged over email and posted on blogs has increased demand for storage from Internet service providers such as

Google

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.

Brocade, however, has sent mixed signals to investors. In the previous quarter, management said business spending on its technology was tepid. Brocade later lowered its third-quarter revenue target to a range of $325 million to $327 million, from previous guidance of $330 million to $340 million.

At the same time, Brocade lifted its earnings forecast to a range of 11 cents to 12 cents, from 10 cents to 12 cents.

Analysts are expecting the company to earn 11 cents a share, minus options expenses and other one-time items, on revenue of $327 million.

Investors will be watching to see if the company can improve its gross profit margins and continue to cut costs by merging its product lines with those it acquired from McData earlier this year. McData products generally carried lower profit margins, diluting Brocade's overall profitability.

But in the last quarter, Brocade said its plans to squeeze costs were moving ahead of schedule.