For its second fiscal quarter ended 31 July 2003, the company reported net income of $9m or $0.08 per share, compared to a net loss of $4m in the fiscal quarter to 30 June 2003, since when the company has adjusted its calendar.
Revenue in the latest quarter was $107m – towards the low end of previous guidance, up 39% year-on-year, and up 4% sequentially.
For its current third fiscal quarter, the company forecast revenue of only $105m to $110m, with net income of $0.05 to $0.07 – excluding any revenue from the proposed purchase of Nishan or Sanera (see separate story).
The low guidance came despite McData’s statement that sales of FICON hardware should rise in the second of the year because of related product shipments from EMC Corp and IBM Corp, and despite the recent launch of a new low-end Sphereon 4300 device.
McData said it normally sees revenue growth slow in the third quarter as a result of seasonality. In view of what we believe is an improving IT environment in the second half of the year and seasonality and a competitive environment, we’ve been in we believe we’re giving reasonable guidance.
The competitive environment of the last few months has seen significant price cuts for storage networking hardware. Earlier this month in its earning call Brocade claimed that it had reversed the incursion of McData into its mid-range territory with the successful McData Sphereon 4500 by among other things cutting prices.
Not so according to McData. We’re continuing to take share in the mid-range, said McData CEO John Kelley, who said that 4500 revenue had risen 50% sequentially, and that mid-range switch revenue in general had risen by 25% sequentially.
McData was asked repeatedly about pricing during its earnings conference call, but gave little away. It’s a reality that if the programs [rivals’ price cuts] come at us, we have to be able to respond, said Kelley.
The company had plenty of margin to fund price cuts. It said its gross margin in the second fiscal quarter was 59%, but that two percentage points of that was due to the release of a vendor obligation.
For the current quarter it said it expects its margin to be in the mid-fifties. Among positive effects it cited the increasing rate at which customers are exploiting its flexport option by which they simply buy software to activate more ports on McData hardware.
