Brocade Hit With Q2 Loss

Hit with acquisition-related charges and slipping revenues, Brocade Communications Systems Inc. (Nasdaq: BRCD) ended its second quarter with a huge loss, in contrast to a year-ago profit (See Brocade Posts Q2 Loss).

The company posted a second-quarter net loss of $146 million, or 57 cents a share, largely because of about $135 million in charges related to the acquisition of Rhapsody Networks. Revenue for the quarter also slipped, to $130.9 million, compared with $135 million for the same quarter last year (see Brocade Scoops Up Rhapsody).

The results were in line with Brocades previous guidance and analysts' expectations. On its first-quarter earnings call in February, Brocade said it expected the quarter to fall between $128 million and $133 million (see Brocade Puts Up Q1 Loss).

"Unfortunately, this wasn’t a surprise at any level," says A.G. Edwards analyst Shebly Seyrafi. "This was very much as predicted."

For the current quarter, Brocade expects revenues in the range of $131 million to $137 million, and earnings of 1 cent per share, executives said on a conference call with investors today.While the unhappy results may not have been a surprise, they also will probably do little to reassure investors that the company can stand up against formidable competitors like Cisco Systems Inc. (Nasdaq: CSCO) and McData Corp. (Nasdaq: MCDTA).

Cisco, in reporting its third-quarter results, said it expects its $10 million in SAN sales for the period to double over the next few quarters. McData, meanwhile, recently raised its first-quarter guidance; it's now expecting revenues in the range of $102 million to $103 million -- an increase widely seen as coming at Brocade's expense (see Cisco Reports $10M SAN Sales and McData Raises Q1 Guidance).

Brocade CEO Greg Reyes, however, says he's not all that worried about Cisco. "Ten million dollars seems to be quite disappointing for a multibillion dollar company," he said on a conference call this evening. Brocade, he added, should have no trouble competing effectively with the networking giant. [Ed. note: Famous last words?]

During the quarter, Brocade took a number of one-time charges, including $10.9 million in restructuring charges and severance for the 115 employees who lost their jobs during the quarter. Excluding the special charges, Brocade said it only lost $1 million during the quarter, or breakeven. That’s still down from earnings of $0.3 million for the year-ago quarter.

On the company's earnings call today, Reyes discussed Brocade's cost-cutting measures, which are primarily from layoffs: "We continue to focus on areas of optimization... especially in the area of testing."— Eugénie Larson, Reporter, Byte and Switch