Merrill Trims Estimates for Brocade Communications

Analyst John Roy notes the company's midrange business weakened quarter-over-quarter and it could lose market share to McDATA

Brocade Communications (BRCD ) reported breakeven second-quarter earnings (excluding items). Merrill Lynch cut estimates and reitered its neutral rating.

Analyst John Roy says the company's second-quarter top-line and bottom-line results met expectations. However, he notes the company's midrange business (50% to 70% of revenues) weakened quarter-over-quarter, and he believes McDATA's 4500 product is taking market share.

Roy cut his third-quarter and fourth-quarter revenue estimates by 4% and 7%, respectively, to $134 million and $138 million. He held his third-quarter and fourth-quarter GAAP EPS estimates at 1 cent and 2 cents, respectively. He dropped his fiscal year 2004 (October) estimates to $631 million in revenues from $648 million, and to 7 cents GAAP EPS from 8 cents.

While the stock could pull back on this report, Roy says, he thinks the outlook for storage area networking is solid, and an upcoming update with regard to the company's new Fabric OS could create a competitive advantage.