Piper Jaffray Downgrades Brocade (BRCD) to Neutral; Highest Probability Take-Out Candidate Off the Table

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BRCD Hot Sheet

Rating Summary:
4 Buy, 14 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23

Piper Jaffray & Co. downgrades Brocade Communications (Nasdaq: BRCD) to Neutral. Price target lowered from $10 to $9

Piper analyst says, "We are lowering our rating on BRCD given our belief the strategy to sell Foundry's networking gear into Brocade's OEM partners is not working as planned. While Brocade has had success announcing OEM deals with IBM (NYSE: IBM) and Dell (Nasdaq: DELL), the IBM deal was believed to be 3 phases with the 2nd phase planned in July, but this hasn't happened. Juniper (Nasdaq: JNPR) also recently announced IP OEM deals with IBM and Dell, and we believe this reduces Brocade's opportunity in these important channels. It was also believed H-P was a potential IP OEM opportunity, but we think H-P's (NYSE: HPQ) acquisition of 3Com (Nasdaq: COMS) kills this opportunity and eliminates the possibility H-P would acquire BRCD. We are lowering our estimates to reflect less IP OEM sales and believe fair value for BRCD's shares is around $9."

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Brocade Communications Systems, Inc. engages in the supply of storage area network equipment and provision of data center networking solutions.

(NOTE - shares are trading down in pre-market activity)