Skip to main content

Updated from 5:14 p.m. EDT

Third-quarter sales for



were off nearly 12% year over year and per-share profits plunged by more than 85%, the storage-platform vendor reported after the close on Wednesday.

Guidance for the fiscal fourth quarter was somewhat more conservative than Wall Street had hoped. Brocade expects a 2-cent-per-share pro forma profit on sales ranging from $134 million to $139 million. Analysts had expected a 2-cent profit on sales of $139 million.

Net revenue for the quarter ended July 26 was $133.5 million, up from $130.9 million in the previous quarter, but well below year-ago sales of $151.2 million.

Net income for the quarter was $1.9 million, or 1 cent a share, compared to an 8-cent profit a year ago, according to generally accepted accounting principles. However, the small third-quarter profit did reverse the GAAP net loss of $146 million, or 57 cents in the preceding quarter, including a $73.8 million charge for the acquisition of Rhapsody and restructuring-related charges.

Both earnings and revenue in the July quarter were within the range the company told investors to expect. Wall Street, however, had expected a bit more; consensus revenue projections as reported by Thomson First Call were $134.81 million.

Brocade sells switches and related software for storage area networks, or SANs.

The San Jose, Calif., company reported non-GAAP earnings of $2 million, or 1 cent a share, which was equal to expectations.

The company said it expects to continue cost-cutting, but without resorting to further layoffs in the immediate future. The company trimmed approximately 12% of its workforce in the last year and now employs about 1,200 people.

Scroll to Continue

TheStreet Recommends

At the moment, Brocade does not enjoy a lot of investor confidence.

Like the rest of the storage sector, Brocade had a good run in the first half of the year, climbing 28% through June 30, only to drop by 12% since early July. What's worse, short interest in the stock grew by nearly 10% last month, and in the last 10 days, "The capital markets have seen notable amounts of trading with a bearish sentiment," said Stacey Briere, a capital markets analyst with the Susquehanna Investment Group. Susquehanna has no investment banking relationship with Brocade.

One reason for caution is increasing competitive pressure from rival



in the midrange and from



, which recently entered the high end of the SAN market, said Kaushik Roy, another Susquehanna analyst. "Our channel checks are indicating that McData continues to gain share from Brocade in the mid-range of the market," he wrote in a research note.

However, during a call with analysts after the bell, CEO Greg Reyes said that price-cutting helped the company win back share during the July quarter, but did not offer specific numbers to back his assertion.

Reyes sounded more confident about the future than he has in previous calls, and said he based his optimism on a strong pipeline and increased competitive wins.

In regular trading on Wednesday, the company gained 4 cents, or less than 1%, to close at $5.51 a share. After hours, shares were up another 8 cents.