Brocade profit dips, price cuts take toll

SAN FRANCISCO: Data storage networking company Brocade Communications Systems Inc., on Wednesday posted sharply lower third-quarter net profit as it cut prices to ward off a competitive threat from rivals McData Corp. and Cisco Systems Inc.

San Jose, California-based Brocade also forecast fourth-quarter revenue that was below the mid-range of analyst expectations, and said average prices would fall again in the current quarter. Brocade shares declined slightly in after-hours trade to $5.49 from a close of $5.51 on Nasdaq.

Brocade said third-quarter profit fell to $1.9 million, or 1 cent a share, from $18.3 million, or 8 cents a share, in the year-ago period. Revenue declined to $133.5 million from $151.2 million. Compared with the second quarter, Brocade improved its bottom line and increased sales.

Excluding deferred stock compensation related to an acquisition, Brocade said it had a profit of $2.0 million, or 1 cent a share, meeting the average forecast of 1 cent a share of analysts polled by Reuters Research, a unit of Reuters Group Plc. The average forecast for revenue was $134.7 million.

Price cuts took a toll on Brocade, a large supplier of electronic switches that tie together networks of stored data, throughout the quarter.

"Over the last 90 days, we took pricing action in certain market categories to address the competition," Brocade Chief Executive, Gregory Reyes said in a conference call to discuss the company's results.

The company also forecast earnings of 2 cents a share, before $200,000 in special items, and revenue in the range of $134 million and $139 million. Analysts were expecting fourth-quarter earnings of 2 cents and revenue of $136 million to $143.9 million, with an average estimate of $140.9 million.

In addition to sluggish spending on corporate networking, Brocade also faces growing competition from Cisco Systems Inc., the world's largest maker of equipment that directs Internet traffic, and new products from rival McData.

In the second quarter ended in April, Brocade reported a loss of $146 million, or 57 cents a share. Excluding acquisition-related expenses, the company lost $1 million.

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