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Brocade & McData's Paths Diverge

NEW YORK -- Listening to Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA)
hold forth at an analyst conference today made it clear the Fibre Channel director leaders are headed for different sectors of the market.

Brocade CFO Tony Canova spent much of his presentation here at the RBC Capital Markets SAN Conference talking about the fertile entry-level market, while McData CEO John Kelley discussed fending off Cisco Systems Inc. (Nasdaq: CSCO) on the high end.

We’ve really just begun to see expansion in the entry level,” Canova says. Later, he called the low-end “a market that’s massively under-penetrated.”

One analyst has already upgraded Brocade’s stock rating on the basis of its upcoming low-end switch, expected this spring. Susquehanna Financial Group

expects the new switch to cost 30 percent to 40 percent less than the existing Silkworm 3800 and 3900 switches -- which prompted the firm to upgrade Brocade from Neutral to Positive last week. Susquehanna’s storage analyst Kaushik Roy says the new switch won’t raise Brocade’s revenue, but it will lower its costs.

Going low-end could be a double-edged sword, though. “It seems to me they’re out of the director level game at this point,” Roy says. “It will be hard for Brocade to be a leader at the director level.”

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