Brocade Dn 14%; Co. Denies Rumor About Its Design Team
By PAT MAIO Of DOW JONES NEWSWIRES
LOS ANGELES -- Shares of Brocade Communications Systems Inc. (BRCD) fell more than 14% on Friday after a rumor began circulating that a key design team at the storage network parts company had jumped ship.
Around 12:30 p.m. EST, Bill Murphy, manager of investor relations at Brocade, distributed an e-mail to Wall Street analysts covering the stock in which he denied the rumor and said that all was quiet at the company.
"Today, a rumor circulated on the Street indicating that Brocade's ASIC design team had left the company. I'd like to assure you that this rumor is absolutely false," Murphy wrote in the e-mail.
"Brocade continues to experience a very low rate of voluntary employee turnover and a remarkably high success rate in attracting new talent to the company," he added.
"I had heard the rumor, but it doesn't make sense," said Ara Mizrakjian, analyst with Robertson Stephens. "Why would someone leave Brocade, the market leader, and go to work for someone else?"
The rumor began circulating a day after Salomon Smith Barney lowered its rating on several Storage Area Network parts makers, including Brocade, EMC Corp. (EMC), Inrange Technologies Corp. (INRG) and Network Appliance Inc. (NTAP).
Salomon still likes the Storage Area Network sector as an investment, but feels the industry's fundamentals are under pressure.
Early Friday afternoon, EMC shares were down 6.3%, while Network Appliance was down 11%. Inrange was off 2.1%.
Shares of Brocade recently traded at $28.75, down $4.56, or 14%, on volume of 18.6 million shares, compared with daily average volume of 14.1 million. Brocade shares fell to a 52-week low of $27.63 around midday.
-By Pat Maio, Dow Jones Newswires; 323-658-3776; patrick.maio@dowjones.com
Here's an excerpt of the SB note:
* While we continue to believe in the longer term appeal of the storage industry and see storage as a relative outperformer, we also continue to feel that storage stocks
and their fundamentals will be under pressure in the near term. Therefore, we are adjusting our ratings to reflect our near term caution.
* Brocade 1H-->2H (target $44), EMC 1M-->2M (target $45), Inrange 1H-->2H (target $24), and NetApp 2H-->3H (target $29).
* Although we recognize that much of the downside risk is
reflected in current stock prices, we cannot ignore looming
fundamental erosion which has been caused by an economic
downturn.
* We note that these companies continue to execute very well
and that our rating adjustments is based on macroeconomic
weakness, nothing company specific.
Brocade: Price target to $44 from $56. We have applied a 55x multiple to our forward EPS estimates one year out to arrive at our current price target.
Brocade: We are reducing our F2001 revenue estimate to $667.5 million, representing 102.9% yoy growth, from $711.3 million. Our updated calendar 2001 revenue estimate is $690.3 million, representing 68.1% yoy growth. We
are reducing our F2001 EPS estimates to $0.53, representing 90.6% yoy growth, from $0.57. Our updated calendar 2001 EPS estimate is $0.55, representing 59.0% yoy growth.
We believe that deteriorating economic conditions will continue to impact storage companies' fundamentals in the upcoming months. We have continued to see signs of building component inventory levels, pushed out new application implementations, cancelled customer orders, lengthening sales cycles and continued customer budget cuts. Further, we continue to hear feedback (over
the past couple of weeks) that international markets are slowing, which has been a bastion on strength in the past few quarters. Due to continued customer feedback, we now believe the storage market will grow between 15-20% this year, which is down from prior expectations of 25%.
Note: we continue to believe the long term growth rate of the industry will be around 25%.
In our opinion, many of our companies have been executing flawlessly and have great management teams with a huge secular trend ahead. We continue to believe that the trend to network storage is forthcoming and only just beginning to unfold. We note that many of our companies' current pauses are related to macroeconomic conditions, not poor execution. We See These Companies Exiting The Pullback Even Stronger.
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A rumor plays well when the investor is on pins and needles. Some fund bought large blocks over 50K at the ask when in the $27s.
A typical trade: 3/9/2001 3:59:00 PM $27.625 75,000 shares, $2,071,875 at the ask.
We can go lower if a tech mutual fund has to sell BRCD to cover redemptions. Fido, Putnam, and Janus are large holders of BRCD. Fido has been hit with redemptions annd opened a few of their previosuly closed funds to new investors. Janus has been taking a beating.
Fidelity Aggressive Growth had over 1M shares of BRCD in 2000 and it was thier #5 holding per Morningstar. They are down 21% YTD. My best bet for the fund to be selling BRCD the most. Several other funds holding BRCD are down 20% or more YTD.
Jack |
