Gadzoox warns of lower revenue in 1Q

Gadzoox Networks Inc. (Nasdaq: ZOOX) said it anticipates first quarter revenue to be down by a third sequentially. It also expects results to be below expectations for the next two quarters.

The stock also got a couple of downgrades; Morgan Keegan lowered it from "outperform" to "market perform" Monday, before its announcement after the closing bell. Tuesday, Chase H&Q cut its rating from "buy" to "market perform."

Shares in the provider of SAN (storage area network) products closed at 20 5/16 Monday, well below their 52-week high of 109 7/8. The company topped estimates in its fourth quarter.

The company believes that revenue for the quarter may be as much as a third below revenue for the prior fourth quarter, in which it reported sales of $47.9 million.

For the next two quarters, while revenue is expected to grow, they are likely to lag current expectations. The company said it just wasn't moving inventory through its distribution channel as fast as expected.

First Call's consensus of seven analysts is expecting a loss of 12 cents a share for the quarter. Gadzoox didn't say how revenue shortfall would affect the bottom line.

In order to improve sell-through at the end-user level, Gadzoox said it has increased the size of the sales force and realigned it to more directly support the reseller channel. It is also expanding its training and customer service capability and adding new reseller and distributor programs. The company expects these actions to increase demand in the coming months.

Gadzoox said another positive going forward is its recently announced its break-through networked storage pooling product, Axxess, and its Fibre Channel to SCSI router product, Geminix.

The company's competitors include Ancor Communications (Nasdaq: ANCR), Brocade Communications (Nasdaq: BRCD) and Emulex (Nasdaq: EMLX).