The market's punishing Brocade Communications
What's behind this brutality? A lowered first-quarter sales and profit outlook, of course, announced late yesterday when Brocade met expectations with its fourth-quarter earnings. The storage area networking company's 2003 Q1 ends in January, and things aren't looking so promising right now.
Sales will come in between $120 million and $125 million, far below the expected $152 million. Also, it expects merely to break even with last year's earnings. The Street had hoped for a profit of $0.07 a share. In its 2002 first quarter, sales were $123 million, with earnings per share of $0.05.
An IT spending desert continues to parch Brocade. Its four biggest customers make up around 73% of its revenues, so when they aren't buying, it hurts. The company, though, doesn't expect the current weakness to extend past the first quarter. For its sake, we should hope not.
Besides sales, another area of concern -- though it went unmentioned by the company yesterday -- should be its ballooning accounts receivables. A peek at the numbers shows that revenue for fiscal 2001 increased 9.6%, while over on the balance sheet, accounts receivables shot up 42%. Brocade made sales, but it's still waiting to collect all the money it's owed. This type of situation is always a red flag.
Shares are currently trading at around 21 times earnings, despite the stock's drop. We hope things improve for Brocade once the IT spending market firms up. But for us, even though it's gotten the beat-down, Brocade still looks expensive.