McData has now lowered guidance twice in the last three quarters. The first time came after EMC Corp. (NYSE: EMC) used Ciscos entry into the SAN market to squeeze McData on price (see EMC Playing Hardball With McData? and McData Maudlin Over Price Pressure).
Challenges have continued since then. Though McDatas earnings were decent last quarter, a round of layoffs proved all was not rosy (see McData Struggles to Keep Pace and McData McDownsized). On the competitive front, Cisco finally started gaining traction in the high-end director switch market last quarter, while Brocade recently launched new switches that gained OEM wins from Hewlett-Packard Co. (NYSE: HPQ) and Hitachi Data Systems (HDS) (see Cisco Storage Growing Up and SAN Snacks From SNW).
Analysts speculate it was gains by the competition that caused McData to falter on revenues this quarter.
Specifically, we believe McData is facing additional pressures from Ciscos continued success at IBM on the high end and Brocades product cycle on the low end, analyst Paul Mansky of ThinkEquity Partners wrote in a note today.
McData is also caught between product cycles. It recently announced a low-end switch to compete with Brocades latest offering. In the second half of the year, McData is expected to issue products based on its 2003 acquisition of Sanera, gear based on technology acquired from Aarohi Inc., and new 4-Gbit/s switches (see John Kelley, President, CEO & Chairman, McData Corp. and McData Completes Sanera Acquisition).
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