Brocade Communications (Nasdaq: BRCD) wasn't discouraged by a bearish report Monday. The giant plowed on another 1/8 to 210 3/16 as analysts debated whether or not the best is over for the storage networking company.
A research note from U.S. Bancorp Piper Jaffray called Brocade "the last man standing in an increasingly unhealthy industry."
The report from Ashok Kumar said the company is about to get steamrolled by a new standard in storage technology. While enterprise OEMs (original equipment manufacturers) such as SUN Microsystems (Nasdaq: SUNW), EMC (NYSE: EMC), Hewlett-Packard (NYSE: HWP) and IBM (NYSE: IBM) have yet to embrace fiber channel connectivity, Ethernet/IP technology should begin rolling out in six months, Kumar said.
He expects quarter over quarter revenue momentum to start slowing beginning in January and said the company's valuations are about to start letting out some air.
"This person is not happy with the call he made, and is trying to maintain it," said A.G. Edwards & Sons analyst Shebly Seyrafi on Kumar's report, which is just the latest in a series of bearish statements. Kumar has been negative on the stock even despite is latest stellar earnings report.
A report from Wit Capital said the earnings news should be enough to "support the stock at current levels." The report from analyst Mark Specker also reiterated a "strong buy" rating and said investors can be confident the stock will "see 25 percent upside over the next four months."
"Most people on the Street don't agree," Seyrafi said of Kumar's stance. Brocade's stock has more than doubled since Kumar first predicted that the days of fiber channel as the storage standard were over, and its demise would mean the end for Brocade, especially as big name Cisco (Nasdaq: CSCO) entered the business.
But Brocade has "come to peace" with Cisco through an agreement whereby the networking giant uses its switching technology.
Besides, Brocade is a storage switching company first, and a fiber switching company second, Seyrafi said. By the time IP takes over FC technology, in three to five years, Brocade will have such an incredible base of customers that it won't be run over by Cisco.
Seyrafi holds a "buy" rating on the company, which he believes is the 800-pound gorilla for investors who want to invest in the leader in its sector. He has a 12-month price target of $240 on the stock.