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McData Slashes Guidance - Again

In what is becoming a quarterly ritual, McData Corp. (Nasdaq: MCDTA) delivered bad news as its earnings report approaches (see McData Sales Down).

McData CEO John Kelley says the SAN switch vendor will miss its revenue targets by a long shot when it announces first-quarter earnings on May 20. McData now forecasts revenue of between $94 million and $104 million, down from its previous estimate of between $108 million and $115 million. The new earnings forecast ranges from a loss of $0.01 per share to a gain of $0.02 per share, a small move from previous guidance between breakeven and $0.02.

This raises the question: Are competitors Brocade Communications Systems Inc. (Nasdaq: BRCD) and Cisco Systems Inc. (Nasdaq: CSCO) stealing share, or did McData shoot too high in the first place?

"We anticipated normal industry seasonality in the first quarter of 2004, but we had nonetheless expected to maintain revenue at approximately the level of our very strong fourth quarter," Kelley said in a statement. "Revenues have been somewhat slower to ramp than we expected and more typical of our first-quarter experience historically. We believe this is related to timing rather than underlying demand."

Considering that the strong fourth-quarter Kelley referred to produced $114 million in sales, previous guidance for the first quarter seems overly optimistic. Analyst Brenden Smith of Goldman Sachs & Co. wrote in a note today that McData probably couldnt have hit its previous estimates “without catching some breaks along the way.” Smith notes that McData would have had to secure additional OEM wins while holding share in the director switch market to reach its estimates.

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