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Brocade Won't Meet Prior Forecast

The company's shares dive after the close of regular trading.
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Brocade Communications Systems


warned that its third-quarter revenue and adjusted earnings will come in below its prior forecast, leading to a sharp selloff in its shares following the close of regular trading.

The San Jose, Calif., maker of data storage networking products said net revenue for the third quarter will be $121 million to $122 million, while its loss under generally accepted accounting principles will be 3 cents to 4 cents a share. The GAAP number will include charges totaling around 4 cents a share.

On that basis, Brocade would report adjusted results in a range around the break-even line to a profit of about 1 cent a share. The shortfall is mainly a result of customers upgrading to newer technology, hurting older product lines.

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Shares of Brocade were sinking 58 cents, or 13%, to $3.91 after the close. Analysts surveyed by Thomson First Call were expecting a profit of 6 cents a share and revenue of $143 million for the quarter.

In May the company projected revenue of $140 million to $145 million, and diluted non-GAAP earnings of 5 cents to 6 cents a share for the quarter. Gross margin will also miss Brocade's previous guidance.

Sell-through, a measure of OEM and partner sales to end-users, was about $141 million to $142 million for the third quarter, below the prior expectation.

Brocade also said that if it doesn't file its Form 10-Q for the second quarter by Aug. 23, it expects to be declared in default of its 2% convertible subordinated notes. The notes could be called by the bondholders.

The company is working to make the required filings as quickly as possible, but in the event of a default, Brocade plans to repay the notes.