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Brocade shares fall on weak sales, guidance

NEW YORK (AP) -- Shares of Brocade Communications Systems Inc. fell Friday after the maker of computer networking technology said its fiscal second-quarter sales fell because of a slowdown in the storage market and issued a weak guidance for the current quarter.

THE SPARK: Brocade's adjusted profit of 17 cents per share beat Wall Street predictions by 2 cents. But overall revenue edged down less than 1 percent, to $538.8 million. Analysts expected sales to increase, to $549.5 million.

For the current quarter, the company projected an adjusted profit of 11 cents to 13 cents per share on revenue of between $510 million and $530 million. Analysts polled by FactSet expect a profit of 15 cents per share on $549.5 million in revenue.

THE BIG PICTURE: The San Jose, Calif.-based company said weaker demand for storage products led to lower revenue from its customers, who are manufacturers in the storage-networking sector. Demand was better for other kinds of networking products.

Investors have worried about weaker technology spending by corporations and government agencies after other companies that make computer networking gear posted disappointing financial results last month. But Cisco Systems Inc., the industry leader, said on Wednesday that it was seeing "good signs" in the U.S. and overseas.

THE ANALYSIS: Janney Capital Markets analyst Bill Choi, who backed his Neutral" rating and $6 price target for the stock, said Brocade's better-than-expected profit stemmed from a tax benefit and predicted that the third quarter will be a tough one, with storage revenue expected to fall.

Stifel Nicolaus analyst Aaron Rakers, who rates the stock at "Hold," said that while the company may lack sales growth over the coming quarters, he likes its plans to significantly cut expenses by the first half of fiscal 2014.

THE SHARES: Down 27 cents, or 4.8 percent, to $5.46 in afternoon trading, after falling as low as $5.42 earlier in the day. Over the past 52 weeks, the company's shares have traded between $4.18 and $6.44.