Back in August, data-management specialist Brocade
Late last week, Brocade announced its fiscal second-quarter results. Revenues surged 89% to $345.3 million, thanks in part to a nice boost from the McData revenue base. On the other hand, one-time charges related to the deal helped to mute net income. Profits were only $843,000, or breakeven on a per-share basis. In contrast, the business posted a profit of $13.5 million, or $0.05 per share, during the same period a year ago.
McData's relatively lower-margin product line also depressed Brocade's gross margin, which fell from 57.5% to 52.6% over the past year. Yet management believes that it can achieve a level of 55% to 58% over the long term.
Wall Street was also disappointed with the fiscal Q3 revenue guidance of $330 million to $340 million. The stock price plunged 8% on the news.
While it's not uncommon to lowball estimates, it does look as though there's an information-technology slowdown in North America -- seen in the results of Brocade competitors such as Qlogic
Over the long term, I think, Brocade is a good growth story. The company has a large customer footprint and an extensive product offering. But the next couple of quarters could experience a temporary lull from competition, a slowdown in IT, and continued integration of McData.
For related reading:
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,161 out of 29,574 rated players in Motley Fool CAPS, the Foolish investor-intelligence community that you can join for free.
More from The Motley Fool
3 Things Extreme Networks, Inc.'s Management Wants You To Know
After presenting stellar fourth quarter results, the enterprise networking expert's management sat down with analysts to clarify its competitive position and the near-term future of its profit margins.
Extreme Networks Closed the Avaya Deal. Now What?
The network equipment specialist is building a bigger and more perfect beast, one buyout at a time.
How Risky Is Extreme Networks, Inc.?
The network equipment company is building a much larger and more complete beast through a basket of pending acquisitions.