Brocade Communications shares fell 14 percent after an analyst
said Monday that the company's prospects have worsened since its last profit
Shares in the Internet infrastructure company were down $4.35, or 14
percent, to $25.59 Monday. The stock fell 10 percent Friday on speculation
that its relationship with EMC was strained. Brocade manufactures fibre
channel switches and management software for storage area networks (SANs).
Morgan Stanley Dean Witter analyst Christopher Stix downgraded Brocade to
"neutral" from "outperform" and lowered his projections for earnings and
revenue for 2001 and 2002.
Stix said channel checks with Brocade's smaller customers show business
remains weak for its new SAN initiatives; and things have gotten even worse
since the company's February warning, when Stix downgraded the stock to
"outperform" from "strong buy."
"Any economic recovery will come later than previously expected," said
Stix, who declined to peg Brocade to a specific stock price. He said the
stock price should be around $10 to $41.
Brocade had been singled out as one of the more promising stock picks in
these tough economic times, until its most recent earnings report in
When Brocade warned that its second quarter would disappoint, it soured
analysts' outlook on storage stocks, leading to a round of downgrades.
Morgan Stanley's downgrade of Brocade was just the latest dose of bad
news. Other analysts raised concern that Brocade's relationship with storage
giant EMC may be changing.
Speculation that EMC would embed McData's switch technology on its
networking equipment chips hit Brocade shares Friday. McData's stock soared
25 percent on those rumors.
Analysts downplayed the worries.
"Despite rumblings...Brocade and EMC still have a strong working
relationship," said Goldman Sachs analyst Laura Conigliaro in a research
"We do not believe Friday's rumblings suggesting that Brocade's
relationship with EMC has been damaged and that McData will be the exclusive
recipient of some key future EMC business involving embedded switches,"
Salomon Smith Barney analysts H. Clinton Vaughan also said in a research
note that Friday's speculation was off the mark. "We believe the more likely
scenario would be that EMC would choose multiple vendors' technologies," he