Midrange and mainframe systems administrators worldwide should be familiar with McData (NASDAQ:MCDTA). The designer of switched-fabric storage network switches, fiber-optic storage controllers, and the software that ties them all together has reported Q1 2006 pro forma earnings of $0.04 per diluted share, exactly in line with analyst expectations.
The result falls comfortably within earlier guidance, as does revenue of $168.3 million. That's 70% better than last year's comparable quarter, and a big chunk of the growth is built on nice, high-margin training, consulting, and maintenance services. That segment quintupled sales from $6.6 million to $33 million year over year. As McData solutions continue to spread across corporate server farms, these services should continue to increase in value.
McData faces plenty of competition -- Cisco (NASDAQ:CSCO) and Brocade (NASDAQ:BRCD) are the other major players in the networked storage interconnect market -- but the company seems to have a tighter focus on pure storage than the others.
It's also helped by a few good partners. EMC (NYSE:EMC) has been McData's best buddy for years; the two companies have exchanged engineering resources and expertise to make sure their products work well together. EMC is the kind of global juggernaut that can bring in large contracts, and smaller partners like McData stand to benefit handsomely from that halo effect.
McData is trying to leverage its growing market-share and revenue growth to provide new services like disaster recovery and remote office solutions to its existing customers. The next few quarters will show whether or not that's a sound strategy. I'd like to see the margins to continue their recent expansion, and it would be nice to see a few major clients added to the disaster-recovery roster. If this hurricane season is anything like the last, or even like 2004, it could be a hot market indeed.
Further Foolishness, hold the fries:
- Small caps -- like McData -- can be big winners.
- EMC has bought out a few partners before. Could McData be next?
- Maybe EMC should focus on managing its inventories instead.
Want to find more tiny companies with terrific fundamentals and powerful profit potential? Join Tom Gardner and the Motley Fool Hidden Gems team to discover the small caps Wall Street overlooks. Get Tom's full list of picks with a free 30-day guest pass.
Fool contributor Anders Bylund is ready for the hurricanes. The Hurricanes might be a different matter. Go, 'Noles! He doesn't own any of the stocks mentioned, and the Foolish disclosure rules make sure he'd tell you if he did.
