Late Rally Features Brocade

Early theories that storage networking companies might benefit from last Tuesdays tragic events looked increasingly unlikely Wednesday morning.

Despite an anticipated rise in demand for storage gear due to disaster recovery efforts, stocks in the sector fell today. By midday, most of the storage players hit 12-month lows on the Nasdaq composite index.

Hardest hit was McData Corp. (Nasdaq: MCDT), whose shares fell 12.27 percent to $9.65 by early afternoon. By 2:45 PM EST, EMC Corp. (NYSE: EMC) dropped 5.35 percent to $12.21; Network Appliance Inc. (Nasdaq: NTAP) fell 3.66 percent to $9.20; and Veritas Software Corp. (Nasdaq: VRTS) lost 8.46 percent to post a share price of $20.03.

At first, even an upgrade of Brocade Communications Systems Inc. (Nasdaq: BRCD) by brokerage firm First Albany Corp. didn't help, as Brocade's stock dropped just after the market opened.

Then came a slight rally: Brocade climbed 7.93 percent, to close at $19.19 a share. Other stocks also bounced back -- although not as well as Brocade. McData closed at $11.45, down .45 percent; EMC closed at $12.60, down 2.33 percent; Network Appliance closed at $9.29, down 2.72 percent; and Veritas closed at $22.14, up 1.19 percent.Despite the fluctuations, analysts see bright spots. First Albany's Mark Kelleher, for instance, stands firm by his Brocade upgrade. He changed the stock from a “neutral” to “buy” rating before the bell on Wednesday, based on the company’s stock falling over the last five weeks from the mid-thirties to about $16 per share.

“It’s share price has been cut in half, but Brocade is still on the front line in the SAN market and will do well in this sector when the market improves,” he maintains. Kelleher has given Brocade shares a 12-month price target of $24.

“Brocade owns the franchise for SANs, it owns the 16-port switch market and is on track with its 12000 switch to move into the high-end data center market next year," Kelleher asserts. "[Despite] these difficult times, Brocade should still come out okay."

In the meantime, Kelleher says investors are apprehensive, which is causing the market to swing up and down. As well, he acknowledges there are many uncertainties.

“It’s a very difficult environment right now,” he says. “We need to wait for the dust to clear to see what direction this is going to move in.”— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com