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THE DAY AHEAD: You know things are bad when...

COMMENTARY--Some days you just can't win. You know things are bad when your stock falls about $7 in a few seconds.

That's what happened to Brocade Communications (Nasdaq: BRCD), a storage area networking player, just before 5 p.m EST on Wednesday. The company started out on the right path. Brocade reported fiscal first quarter earnings of 13 cents a share on sales of $165 million.

And then management started talking.

First, CEO Greg Reyes warmed analysts up on the company's conference call. He noted a few "concerns about the softening economy," but handed off further comment to CFO Michael Byrd. The stock held its ground.

Byrd then noted that the company's key customers were seeing a dramatic slowdown. He projected "very modest" growth in the second quarter if not flat revenue. That's a nice way of saying Brocade will be about $30 million short on the top line.

"We are seeing the effects of a softening economy," Byrd said. "Since the end of January, we have seen a decline in visibility from some of our customers, which is manifesting itself in lower order rates."

Kaboom. Brocade shares fell from $45 to $38 on the Island exchange before Byrd could finish his sentence. Byrd said the company expected traditional growth rates in the second half of the year, but analysts clearly weren't buying it.

If you can't predict the April quarter well, how can you look ahead to July and October?

You know things are bad when a company touts the fact it "exceeded liquidity expectations."

That's the best thing Internet Capital Group (Nasdaq: ICGE) could come up with Wednesday when it reported a huge fourth quarter loss of $561 million after writing down the value of its portfolio by $302 million.

The Internet incubator, which focuses on business-to-business companies, just completed a quarter of restructuring to conserve cash.

How did it do?

Not so hot. On Nov. 8, ICG had $420 million in liquid resources. As of Dec. 31, ICG had $332 million in cash. The company estimates it will exit 2001 with $200 million in cash.

ICG may pat itself on the back for cutting its cash burn rate, but the company's prospects are still dicey. ICG has some strong companies in its portfolio, but it can't cash in until a few firms in its stable goes public.

Until then, ICG finds itself in a tough spot. It may have to sell some stakes in its portfolio companies, but sure isn't going to get a premium.

Officials touted ICG's "access to alternative financing sources, and the ongoing ability to monetize non-strategic assets'' as reasons to be upbeat, but the cheer rings hollow.

Officials said they were pleased ICG delivered on its promises to streamline its network and cut its cash burn rate. But ICG's inability to raise cash is still going to be a problem if the stock market doesn't rebound. The company also has a big debt load.

You know things are bad when you try to explain away why a company missed estimates.

That's StarMedia's (Nasdaq: STRM) plight. The Internet media company targeting Spanish- and Portuguese-speaking audiences reported a fourth quarter loss of 49 cents a share on sales of $20.1 million. At first glance, it looks like StarMedia fell short of First Call estimates calling for a loss of 48 cents a share.

But officials explained on the company's conference call that the First Call estimates were skewed by an analyst that just picked up coverage of the company. That one analyst threw off the sample of 10 analysts compiled by First Call.

Whatever. We'll give StarMedia a penny and assume they hit estimates. Analysts, however, weren't buying the company line. In most research notes, analysts said StarMedia missed.

It really doesn't matter though. The real story is that StarMedia sounded a bit upbeat on the call. The company said it was comfortable with 2001 earnings and revenue targets. Of course, StarMedia is expected to lose $1.49 a share on sales of $114 million in 2001.

CEO Fernando Espuelas said the Latin America Internet market was at an inflection point where users are hitting critical mass. The company is expanding its Internet access software and said it will continue to capture market share. StarMedia also noted major advertisers are getting serious about Latin America.

The company plans to be EBITDA (earnings before interest, taxes, depreciation and amortization) break-even by the fourth quarter, but analysts are doubtful. "We are still somewhat skeptical about the company's ability to become EBITDA break-even by the fourth quarter," said Lehman Brothers analyst Michael Simpson. TDAIN


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