Brocade?s Plunge Could Indicate Lower Network Traffic

Shares of Brocade Communications slid 30 percent Friday, setting a 52-week low, after the networking products maker issued a forecast for lower-than-expected earnings. The report could indicate traffic is slowing.

Shares of the San Jose, California company that competes against Cisco Systems and Juniper Networks closed at $3.52, giving the company a market capitalization of only $1.68 billion.

Because Brocade warned of a "softer than expected IT environment" as well as lower U.S. government demand, earnings for the third quarter ended July 30 will fall about 2 cents to around 9 cents a share, the company said. They are scheduled to be released Aug. 18.

While Cisco shares recovered from an earlier decline, Dot Hill Systems dropped nearly 8 percent and NetApp fell about 3.3 percent. Given the stock market's gyrations over fears of another recession, orders for networking equipment could be a sign of slowdown.

Brian Marshall, analyst with Gleacher, maintained a Buy rating on Brocade and said the decline made the shares "too cheap to ignore." He said the company, which previously bought Foundry Networks, was positioned for future growth.

Brocade, in its statement, forecast revenue of only $500 million to $505 million, compared with an expected $540 million to $560 million.

Brocade, under prior management, had been one of the fastest growers in the equipment sector and a top stock after its 1999 IPO. But former CEO Greg Reyes was convicted of backdating stick options in 2007. Current CEO Michael Klayko came to the company when he sold Rhapsody Networks to Brocade.