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To: Johnny Canuck who wrote (34649)	10/4/2001 7:28:00 PM
From: Johnny Canuck	Read Replies (2) \| Respond to of 68284

"McDATA's third quarter revenue performance was strong, despite recent national events, and reflected solid growth in demand for McDATA's suite of hardware and software products from the core to the edge of the enterprise," said Jack McDonnell, CEO of McDATA. "Our customers deployed a record number of both our 6000 Series Director-Class product, as well as our recently introduced line of high-availability switch products in the third quarter. However, in comparison to our expectations, we sold more of these products -- in particular, the 6000 Series Director -- through channels where our margins are lower, and we expect this variance in mix to adversely affect our expected gross margins in the third quarter." At the same time, McDATA is making progress on improving its manufacturing processes, and is midway through implementation of a disciplined strategic manufacturing plan, designed to improve workflow, costs and margins. Consistent with that plan, the company completed a thorough review of operations, reorganized its factory layout, consolidated a key supplier relationship, outsourced the manufacturing of its edge products and strengthened strategic partnerships with its major suppliers. "We are driving the implementation of a new 'outsourcing-focused' manufacturing model that shifts manufacturing operations, component purchasing and inventory management to our strategic contract manufacturer," said Bob Finley, McDATA's recently appointed vice president of manufacturing. "This model is designed to allow McDATA to focus on its core competency and value- add -- developing leading open storage networking technologies and solutions -- while outsourcing its day-to-day manufacturing operations." The operational review also included a physical inventory, an analysis of inventory transferred from its discontinued suppliers, a review of obsolescence, end-of-life inventories and other inventory-related commitments. Based on this review, the company expects to incur a one-time charge of $11 to $13 million pre-tax in the third quarter. "McDATA undertook an aggressive new product development program that encompassed four new product introductions in as many quarters. The resulting ramp-up abnormally pressured the organization and its suppliers, and adversely affected both throughput and margins. Our manufacturing plan actions completed to date have significantly improved production yields," said Finley. "In the short term -- specifically our upcoming fourth quarter -- we will continue to work through our remaining higher-cost component inventories. Longer term, we anticipate cost and margin improvements as we outsource more manufacturing processes to our strategic contract manufacturer and secure lower cost offshore sourcing for our products." briefing.newsalert.com