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After Buying Spree, McData McDrops

Although industry analysts say McData Corp.'s (Nasdaq: MCDTA) cash deals for Nishan Systems Inc. and Sanera Systems Inc. will give it the broadest storage networking lineup in the market, Wall Street was put off by McData's weaker-than-expected outlook and the dilutive effect of the deals (see McData Sweeps Up Nishan, Sanera).

McData's stock fell 17.9 percent today, closing at $10.40, amid a broader decline for technology issues.

The company reported $107 million in sales and net income of $9.1 million, or $0.08 per share, for the quarter ending July 31. It forecast revenue for the current quarter to be between $105 million and $110 million -- below the $113 million analyst consensus estimate -- with earnings of $0.05 to $0.07 per share, excluding the effect of the Nishan and Sanera acquisitions.

In sum, near-term competitive concerns trumped the anticipated long-term benefits of McData's acquisitions of Nishan and Sanera.

Analysts said Cisco Systems Inc. (Nasdaq: CSCO) in the most recent quarter appeared to be making inroads at the high end against McData (see Cisco Misses SAN Sales Target). In the fabric switch segment, meanwhile, McData's revenues were up 32 percent sequentially, indicating that it's continuing to gain share against Brocade Communications Systems Inc. (Nasdaq: BRCD), although analysts cautioned that competition was increasing for McData here, too.

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