Network Computing is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Can McData Play With a Lead?

By all accounts, McData Corp. (Nasdaq: MCDT) is head and shoulders above its competitors in the market for enterprise-class storage area networking directors. But can the company keep its lead as competition increases and the sales environment gets tougher?

That question has Wall Street analysts standing on the sidelines, waiting to see if EMC Corp. (NYSE: EMC) spinoff McData can indeed play with a lead. Though most analysts covering the stock laud the company's technical and sales connections, their lukewarm Buy or Hold ratings indicate a lack of momentum for McData's business, which they say may not pick up anytime soon.

Andrea Grosz, vice president for equity research at First Union Securities, calls McData "the clear leader" in the market for high-end directors used in SAN implementations, and says the company's long-term outlook is good. But short-term market conditions, as well as expected increased competion from players like Brocade Communications Systems Inc. (Nasdaq: BRCD), has Grosz rating McData's stock as Market Perform, a call echoed by several of her Wall Street peers.

"Like all storage companies, McData's biggest challenge right now is the macro environment for IT spending," says Grosz. "They have a great market position and a great partner in EMC." McData also has OEM deals with IBM Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HWP), and is expected to add Compaq Computer Corp. (NYSE: CPQ) to the list later this fall.

But the general slowdown in IT spending, along with some concerns about McData's internal margin performance has Grosz "cautious" about the stock's short-term prospects.

  • 1