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Fibre Channel Sinks Vitesse

Vitesse Semiconductor Corp. (Nasdaq: VTSS) said on its conference call that demand for Fibre Channel components has mysteriously dried up, forcing the company to forecast a disappointing earnings drop for September.

CEO Lou Tomasetta told analysts on yesterday's earnings call that he expects storage revenue -- which consists primarily of port adaptors for 2-Gbit/s Fibre Channel -- to drop 30 percent from its $25.8 million level reported in the June quarter.

Vitesse executives didn't point to exactly what's going on, but the few allusions they made to it were dark enough. "There's either something going on with overall demand or the way the market is absorbing the finished product," Tomasetta said. "I suspect it'll take us through most of the summer quarter to understand what's going on."

But the basic connection Vitesse made between "Fibre Channel" and "falling revenues" is probably enough to get investors running for cover, considering that earnings reports this season have been wobbly at best. Whatever Vitesse's "Fibre Channel thing" is, it seems to be affecting nearly all storage customers in every geography.

Tomasetta rules out the inventory problem that chip makers sometimes face, where customers stockpile parts until, one day, they're oversaturated and stop ordering for a while. "I don't believe it's an inventory issue, because there it would be unique to one or two customers."

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