Storage infrastructure firm

Brocade Communications

(BRCD)

plunged Wednesday evening after warning of a second-quarter revenue shortfall.

Brocade, which makes fibre-channel switches that connect storage-area networks to one another, has gotten

hit hard lately amid the downdraft created by

Emulex's

(EMLX)

warning last week that some of its large customers were delaying their orders. Brocade stayed mum on the subject until Wednesday.

But then the deluge. "We're seeing the effect of a softening economy," said CFO Mike Byrd, who told analysts on the call that since the end of January, the company had been seeing lower order rates for second-quarter shipments. "We now expect growth in our second fiscal quarter to be very modest, and it may even be flat from the first quarter."

Analysts were expecting Brocade's second-quarter sales to grow 18% sequentially. The company said that it expected sales to increase by 19% sequentially in both the third and fourth quarters and reset its guidance for full 2001 earnings to 60 cents a share, 2 cents below expectations. Extrapolating Brocade's new guidance,

A.G. Edwards

analyst Shebly Seyrafi puts the company's forecast for 2001 sales at $760 million, representing sales growth of 130%.

"Short-term visibility has never been more opaque," CEO Greg Reyes said. Reflecting the sort of flawless performance investors are still demanding from the former highflier, Brocade was getting crushed anew in after-hours trading. It was lately sitting at $36.30 on

Island

, down 18% from its New York close.

Checking the Mix

The warning aside, Brocade's fiscal first-quarter earnings came in ahead of Wall Street's expectations. Brocade said it earned $32.5 million, or 13 cents a share, in the quarter ended Jan. 27, surpassing the

First Call/Thomson Financial

consensus estimate of 12 cents a share and quadrupling the $7.3 million, or 3 cents a share, the company earned in the year-ago period.

Revenue totaled $165 million, a tad higher than what most analysts were looking for. The first-quarter sales figure improved upon both last year's $42.7 million and the prior-quarter's $132.1 million.

Other data were mixed. Accounts receivable grew to $96.9 million, up 34% from the prior quarter but in line with the company's historical pattern. Days' sales outstanding, a measure of accounts receivable that counts the number of days between the time a product is shipped and when payment is received, came in at 53, up just marginally from the levels they stood at in the past several quarters.

Inventories were another story. They grew a whopping 314% from last quarter and 187% from last year -- in both cases, far outstripping sales growth. The actual dollar amount of inventory was $5.7 million, less than awe-inspiring, but still indicating the softening to which Byrd was pointing.

In the short-term, things look dicey. It's very possible that Brocade's warning, the first in its relatively short history, has put the company on track for a string of downgrades and estimate cuts by analysts feeling the pressure to get out ahead of trends. As the saying goes, there's no such thing as one bad quarter.

On the other hand, investors still bullish on the fast-growing network storage sector might find a bargain here that they would have thought impossible a year ago. "This company is getting more and more attractive by the day," said Seyrafi. "The stock is trading at a significant discount to its growth rate. Even with the reduced guidance, it's selling at 60 times earnings -- that's for a company growing the top line by 130%. The P/E is half the growth rate."

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