Increased competition in the high-end switch market seems to be straining the cozy relationship between McData Corp. (Nasdaq: MCDTA) and EMC Corp. (NYSE: EMC).
McData on Monday after the market closed confirmed that it failed to reach agreement with EMC on terms that would allow it to fulfill all orders in time to be recognized for the third quarter. As a result, McData lowered its revenue forecast for the quarter to $93 million to $95 million, down from its previous guidance of from $107 million to $112 million (see McData Lowers Q3 Guidance). EMC owned McData from 1995 until spinning it off in 2001.
The revised forecast comes one day after RBC Capital Markets downgraded McDatas stock, to Sector Perform from Outperform. According to RBC, the director market leader appears to have conceded its high-end switch pricing to EMC between 10 percent and 15 percent. EMC accounted for 62 percent of McDatas total sales revenue in the second quarter of this year.
McData's president and CEO John Kelley said in a statement that McData expects flat to sequential third-quarter revenue growth from two of its three largest OEM partners. Still, he said his company's relationship with EMC remains strong.
"We continue to work closely with EMC and value our strong, ongoing relationship," Kelley said.
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