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Strategies & Market Trends : The New Economy and its Winners
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To: Mark Fowler who wrote (7067)5/22/2001 11:07:17 PM
From: Bill Harmond  Read Replies (1) of 57684
 
From Briefing today: McDATA (MCDT) 39.30 +1.04: This storage area networker (SAN) is bidding higher today on the heels of favorable industry comments from Merrill Lynch. Specifically, the firm notes IDC research which now estimates the 2004 fabric switch market at $4.5 billion. This is a sizeable increase from estimates two years ago which placed the combined markets for fabric and switches at $1 billion. The implications are that it's difficult to ascertain the precise market opportunity in storage area networking, but suffice it to say the market will be very big. MCDT primarily addresses the high end SAN market with what are called backbone director-class switching devices. MCDT's primary competitor is Brocade Communications (BRCD) which was first to address the SAN market and has a stronger market position. The competitive SAN environment raises two investment questions for MCDT: 1) can MCDT establish a market leader position in storage area networking, or alternatively 2) is the market big enough for more than one big winner as an investment? Until proven otherwise, Briefing.com would approach MCDT with an eye towards the second perspective. MCDT looks attractive operationally and has targeted a compelling end market -- those dynamics alone make the issue worth watching. Nonetheless, the shares trade at 126.7x estimated 2001 earnings and 66.6x 2002 numbers. Those numbers suggest a market leader premium which may not be the appropriate view at this time. While we acknowledge the underlying strength of MCDT's business, Briefing.com would like to see the fundamentals catch up with current prices.Michael Ashbaugh, Briefing.com
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