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Did Brocade Blow an Opportunity?

Whats Brocade Communications Systems Inc.'s (Nasdaq: BRCD) excuse for its year-over-year decline in earnings?

Investor expectations were high for Brocade, in part because its two major competitors stumbled: McData Corp. (Nasdaq: MCDTA) got squeezed by its major OEMs; and Cisco Systems Inc. (Nasdaq: CSCO) had experienced production problems. Brocade, however, failed to meet those expectations when it annnounced fourth-quarter earnings Thursday (see Brocade Q4 Revenue Slips, EMC Playing Hardball With McData?, and Cisco Still a Kid in Storage).

Brocade’s fourth-quarter net income of $14.8 million was down 6 percent from the same period last year, and its $137.8 million in revenue was down 10 percent. Not surprisingly, its stock price dipped sharply today -- down 17 percent, to $5.92, in midafternoon trading.

“Brocade suffered from a misalignment of expectations,” says analyst Steve Berg of Punk Ziegel & Co. “People looked at Cisco and they didn’t even report [switch] numbers. People looked at McData and their problems with their major supplier [EMC]. Everybody thought Brocade would pick up the slack.”

Brocade did ship more SilkWorm 12000 director switches than the previous year, and CEO Greg Reyes said the company picked up market share in that high end and in the low end, while holding share in the midrange. And CFO Tony Canova said he’s confident Brocade will extend its lead in a fiercely competitive market.

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