barron today on storage.. fyi mentions brcd and emc .. so I guess somewhat ot.
Can Brocade Break Out?
By MARK VEVERKA
If technology is in the tank -- and despite the recent January rallies, we think it is -- how is it that
data storage firms can remain high and dry?
The key to their resilience, it's argued, is that demand for data storage is stronger than the weight of
an economic slowdown or a recession. We all want to save our e-mails, spreadsheets and digitized
reports on our networks indefinitely and to be able to call them up on our screens instantaneously,
day or night, at the office, from home or on the road.
And for computer networks to oblige, they require faster
and more efficient places to hold and manage all that
digital data. That's why, or so the argument goes, that chief
information officers can live without new servers but not
without additional data storage capacity.
Conversely, the biggest reason to believe that data storage
firms, such as EMC and Brocade Communications, won't
be able to maintain their breakneck paces is that
information technology spending this year is looking pretty
flat, or slightly down, after years of robust growth. Even
Cisco Systems chief John Chambers finally admitted to
this sober reality in public. Although he seemed to find it
necessary to traipse all the way to the annual economic gabfest in the Swiss Alps just to come
clean, his admission that telecom spending ain't what it used to be, nonetheless, punctuates what
most everyone else already knew.
The number of information technology executives who said they planned to spend more in 2001
over 2000 plunged 22% between November and December, according to a Merrill Lynch survey.
What's worse, analysts at Merrill point out, is that even those who intend to spend slightly more this
year aren't necessarily going to follow through with their intentions.
Despite all of this pending gloom, we find the data storage outfits thumbing their noses, saying "So
what?" In essence, they contend that they'll grab more than their share of the frozen spending pie.
"Tech budgets may not be going up, but I think the outlook is very positive for us," says Greg
Reyes, president and chief executive of Brocade, a maker of switches for storage area networks,
or SANs.
"We're on the road in December and January. And there
is not a single deal that we lost or a single push-out that's
occurred. We haven't been affected," said Reyes in an
interview.
If Reyes sounded a little defensive, it may be because our
interview occurred a few hours after his stock got
pounded Tuesday, down nine points, to 94. While Reyes
was serenading a banquet room full of money managers
and buy-side analysts at the Merrill Lynch storage
conference in Santa Barbara, investors were unloading
Brocade shares in response to wire reports that Goldman
Sachs analyst Laura Conigliaro had turned sour on the
stock.
That was not the case at all, Conigliaro told Barron's. On a call to Goldman's sales force Tuesday
morning, she says she reiterated some caution that institutional investors may be setting their
expectations too high. Under Reyes, Brocade has earned a reputation for not just merely beating
earnings estimates, but crushing them.
Consequently, momentum investors have come to expect this kind of earningson-steroids
performance from Brocade, Conigliaro explains. "To be perfectly honest, a lot of hedge funds have
played this stock like a harp on the upside," she adds.
Her point: Expecting upside surprises against higher projections in the middle of a major economic
slowdown might be asking too much, even from a company at the top of its game in a red-hot
sector. |
