McData hikes guidance – hugely
Tearing at Brocade fabric
Broomfield, Colorado-based McData said its sales spurt was caused by the success of the new mid-range and high-end SAN switching products it launched in the Fall. These products are part of McData's latest effort to penetrate Brocade's mid-range stronghold, and to block Brocade's attempted invasion of McData's high-end territory.
McData expects fourth-quarter revenue to be between $104m to $106m, up by at least 11% on the same period last year. The company has also upped its income forecast, raising it to $0.06 to $0.08, from its earlier estimate of breakeven to $0.01.
McData CEO John Kelley said in a statement that sales of the company's Sphereon 4500 range of mid-range switches and Intrepid 6000 high end directors, which both shipped in October, were more than double what the company had forecast. Kelley acknowledged that the fourth quarter is usually the strongest sales quarter of the year, but said that the strong sales could only have been made at the expense of McData's rivals.
"Although we believe we benefited from some year-end seasonal strength, it is clear that McData has gained market share," he said. When Kelley issued his statement, only two working days had passed since the beginning of the year. That didn't stop him boasting however that McData has seen "continued demand early in January."
Some of McData's sales increase may be the result of a healthy market in the fourth quarter, and of a recovery by its largest customer, EMC Corp, which yesterday posted preliminary strong preliminary results for the period (see separate story). Merchant bank Salomon Smith Barney yesterday said it expects most storage companies to post fourth quarter results at the high-end or above their previous conservative guidance, because of healthy demand.
However the only significant change in business for McData during the last quarter was that it began shipment of its Sphereon 4500, and its Intrepid 6000.
The Intrepid 6000 is the latest product from McData in the high-end director market, which it dominates. Offering 140 ports, the Intrepid 6000 is a strong riposte to Brocade's Silkworm 12000, a 64-port device which was launched last year as Brocade's first attempt on the high-end of the SAN switching market. McData's previous largest device also offered only 64 ports.
Late in November Brocade warned of a huge 22% sequential fall in its current first fiscal quarter ending this month, which it blamed on a "a contraction in the supply chain to the end-user." Brocade also said then that in its next quarter its revenue will be flat, and that it had achieved its target of 40% market share for the 12000. Some analysts concluded that the temporary slump in revenue could only have been caused by one thing - channel stuffing.
The 8-port to 24-port Sphereon 4500 represents a renewed attempt by McData to penetrate the mid-range market which is heavily dominated by Brocade. When it was launched, McData claimed it offered the same features as Brocade's hardware but at around half the cost.
McData's guidance has been neither steady nor accurate recently. At the beginning of October the company warned that its third quarter revenue would be a shade below guidance, but that its income would be between breakeven and a penny loss. At the end of the same month, it posted a third quarter income of two cents profit.
In the same month it gave fourth quarter guidance of 4% to 6% sequential revenue growth, cut back from earlier guidance of 11% to 15%. Yesterday's guidance represented 29% to 31% growth.
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