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McData McDownsized

Company cuts staff by 9%, raising questions about earnings and future changes UPDATED 4:30PM

In an ominous sign that the general uptick in storage revenue has bypassed Fibre Channel switch makers, McData Corp. (Nasdaq: MCDTA) has cut its workforce by 92 employees -- roughly 9 percent of staff (see McData Cuts Staff).

McData, locked in a battle with Brocade Communications Systems Inc. (Nasdaq: BRCD) and Cisco Systems Inc. (Nasdaq: CSCO) in the price-sensitive FC switch market, now has about 982 employees.

A McData spokeswoman said the company closed a 34-person engineering office in Toronto and cut a few employees in Santa Clara, Calif.: the rest of the layoffs were spread across several departments at its Broomfield, Colo., headquarters. The layoffs did not affect employees who came to McData when it acquired Nishan and Sanera last year. Those divisions have been fully integrated into McData this quarter. The company said the reductions were made to keep operating expenses flat for fiscal 2004 with the current quarter, which ends Saturday.

McData, which will announce fourth-quarter earnings on Feb. 26, will take charges related to the cuts and Toronto closure for the next two quarters. But analysts dont expect McData to change its previous guidance of between $108 million and $116 million in revenue and earnings of $0.00 or $0.01 per share this quarter. The staff reduction does cast doubt on whether McData will make good on its forecast of 15 percent revenue growth in 2004.

“They’re trying to cut down on operating expenses, and you have to ask, ‘Why now?’ ” says analyst Kaushik Roy of Susquehanna Financial Group. “It appears that they may be a little concerned about their growth rate for the whole year.”

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