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Brocade Beats Estimates: Page 2 of 3

Although he said the company “is well positioned for growth in the second half of next year,” Conova did not offer any sales or earnings guidance beyond next quarter.

Officials downplayed the delay of the Silkworm 12000 director switch, which previously was slated to be in customers’ hands this quarter (see Brocade's Slip-Sliding SilkWorm). CEO Greg Reyes says that six of the company’s original equipment manufacturing (OEM) partners are beta testing the product. He said more than 100 units have been manufactured and the 12000 will be in general production during the first quarter of next year with “a smattering of units shipping in January.”

Reyes added, "There's been a lot of back-chat about this product and its timing which is way over-blown."

Gartner/Dataquest

analyst James Opfer says that although the 12000 is shipping behind schedule, that’s not necessarily a disadvantage, since “there is nothing out there with 2 gigabits and the same features.” He notes that, although McData Corp. (Nasdaq: MCDT) is the dominant player in the director class market, McData’s current product tops out at 1 gigabit and offers half the number of ports.

But Brocade’s stock price of more than 100 times next year’s projected earnings, coupled with uncertainty over the 12000 switch, are starting to gnaw at financial analysts. The stock was slammed with another Hold downgrade today, this one from CE Unterberg Towbin, which comes on the heels of a Hold downgrade from Needham & Co. Of the 25 analysts who follow Brocade, 12 now rate the stock a Hold, up from eight who so pegged it a month ago.