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Brocade hit customers and investors with a grand twofer on Tuesday, saying it will have to cut previously reported net income and that it has changed CEOs.

Earlier this month, Brocade announced that an internal audit had revealed some accounting mistakes with regard to stock-based employee compensation. As a result, Brocade expects to report that 2002 net income will rise to $126m from the previously reported $60m. Net income, however, for 2003 and 2004 will fall. Brocade will report a loss of $147m in 2003 instead of the previous loss of $136m and a loss of $32m in 2004 instead of a $2m loss. The storage switch maker's revenue for these periods will not change.

Brocade has yet to file an official statement for the end of 2004 with the US Securities and Exchange Commission but provided these forecasts based on its audit.

In addition to this mess, Brocade tapped Michael Klayko as its new CEO. Klayko will replace Greg Reyes, who was also stripped of his position as Chairman and will become an advisor to the company. Dave House will take on the role of Chairman.

Klayko served as Brocade's vice president of worldwide sales and was once CEO of Rhapsody Networks - a company acquired by Brocade in 2003. ®

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