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Tuesday, August 15, 2006

Brocade Could Still Get Worse BRCD

JP Morgan has just upgraded Brocade from “underweight” to “neutral”. Since the company’s problems are hardly behind it and the stock trades in the middle of its 52-week range, it is hard to see why anyone would hold the stock. Shares currently change hand at $5.24 on a 52-week high/low of $7.10/$3.34.

Aside from criminal charges against past management, the company still faces its own shareholder suits. The company’s decision to buy McData, although it may be based on a survival strategy as much as a growth play, was resoundingly rejected by Wall St.

The one silver lining is that for the period ending July 29, revenue rose 54% to about $189 million. But, the network equipment market said that legal fees were rising. Brocade has settled some of the suits against it, but others are still pending. Whether the company can maintain its Nasdaq listing is also a question. If it cannot, some of it institutional investors could be forced to sell the stock.

Brocade has over $700 million to weather this storm, and its market cap is only a little over $1.4 billion. However, the question remains whether the stock can be viewed as a buy at any price. Maybe, if you love risk.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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