Brocade Runs Into Trouble, Still A Double? (BRCD, CSCO, IBM, DELL)

What is interesting is that Brocade actually beat expectations for its latest quarter with all-time record revenues.  Last night the storage and communications equipment provider said net income was down 27% to $23.4 million.  The non-GAAp picture was different and the earnings came to $0.14 EPS and revenues rose 5% to about $550 million.  Thomson Reuters had non-GAAP earnings at $0.13 EPS and revenues about $537 million.

The issue at hand is Brocade’s guidance.  It projected adjusted earnings of $0.09 to $0.10 and revenues of $535 to $550 million.  Thomson Reuters had estimates of $0.14 EPS and $557 million in revenues.

The situation has deteriorated in trading this morning.  Before the open the stock is down 9.1% at $5.18 on 7.5 million shares.  After the 6PM reading last night the stock was down less than 5% at $5.44 in the after-hours.

Brocade is one of those stocks that can still double from its lows.  A double would barely take it to a year high and valuations would not be extreme if it can manage its earnings and margins properly.  The problem here is that Brocade needs an acquirer to make that double and the world is such that providers either have to be ultra-niche-focused with the best technology that all buyers need OR they have to be larger and larger with broader one-stop solutions for the entire enterprise communications and data center operations.  Brocade is now actually the Foundry and Brocade amalgamation, which puts the company somewhere in between the two scenarios that will work.

JON C. OGG