Bear Stearns Downgrades Brocade to 'Peer Perform'

Analyst Andrew Neff cites increasing competition and potential margin pressure for the data storage company

Bear Stearns downgraded Brocade Communications (BRCD ) to peer perform from outperform.

The data storage company will acquire privately held Rhapsody Networks for $175 million in stock.

Analyst Andrew Neff cites increasing competition, the potential for margin pressure, a lack of valuation catalysts and valuation. He notes increasingly favorable feedback from storage original equipment manufacturers about Cisco's storage products. Neff cut the 35-cent fiscal 2003 (Oct.) GAAP earnings per share estimate to 30 cents on more conservative revenue and margin assumptions. He anticipates a cautious outlook at Cisco's Nov. 21 fourth quarter report.

Neff notes the estimate cut does not reflect dilution from the Rhapsody acquisition, which is estimated at nine cents in fiscal 3003; he says the acquisition reinforces, rather than triggers, his view. Neff sees 25 cents in fiscal 2002 earnings per share.