Updated from May 20

First-quarter revenue for storage vendor

McData

(MCDTA)

declined by nearly 6% year over year as the company swung to a loss from a year-ago profit.

Guidance for the second quarter was disappointing and analysts don't see much likelihood of serious share appreciation until the company's new product cycle kicks in during the fall.

In recent trading, shares of McData were off 22 cents, or 4.8%, to $4.32.

"We believe MCDTA shares may be range-bound in the near-term, but we maintain our buy rating due to its very low valuation of 1.2

times sales, or 0.9

times sales excluding $1.19 in net cash," wrote Shaw Wu, of American Technology Research, which does no investment banking.

Shaw noted gross margins in the quarter were a better-than-expected 56.4%, and one indicator of pricing, "price per switch port," was up 1%. That's a small increase, but the first improvement in over a year.

Paul Mansky of Think Equity noted the company is dependent upon two customers --

IBM

(IBM) - Get Report

and

EMC

(EMC)

-- for about 70% of its business, and derives more than 50% of its revenue from one product segment, high-end switches, known as directors. (Think Equity does not have a banking relationship with McData.)

That market, along with the rest of SAN switching, is becoming more competitive, and Mansky raised the possibility that McData could be an acquisition target. Although he didn't name possible buyers, competitors

Cisco

(CSCO) - Get Report

and

Brocade

(BRCD)

are possibilities.

After the closing bell Thursday, McData reported a loss of $9.8 million, or 9 cents a share, in the April quarter, compared to a profit of $5.3 million, or 5 cents a share, in 2003, according to generally accepted accounting principles. Revenue was $97.2 million, compared to $103.2 million a year earlier. On a pro forma basis, the company earned a profit of a penny a share.

Analysts polled by Thomson First Call were expecting a break-even quarter on sales of $98.94 million.

In mid-April, McData warned that first-quarter sales would fall short of the company's earlier projections. At the time, McData said sales in the quarter ending April 30 would be in a range of $94 million to $104 million, down from its previous estimate of $108 million to $115 million and below the consensus forecast of $112.3 million. McData said its pro forma bottom line should still be in a range of a loss of 1 cent a share to net income of 2 cents a share.

McData sells switches for use on storage area networks, or SANs, which are separate networks dedicated to storage. The switches sold by McData connect the servers to the storage network.

Looking forward to the second quarter, the company projected pro forma per-share earnings to range from a loss of 2 cents to break-even, on sales ranging from $92 million to $100 million. Analysts were expecting a penny a share profit on sales of $105 million.