McData Corp. said Monday it will reduce its workforce after completing the acquisition of a Minneapolis company. The Broomfield-based network-storage company also revised its financial guidance for the first quarter.
McData said the deal to purchase Computer Network Technology for $232 million in stock and debt will be effective June 1, after a vote by shareholders later this month.
When combined, the companies will employ 2,100. McData president and chief executive John Kelley said he would reduce the workforce by 25 percent – or 525 workers – by fall, eliminating overlapping positions.
“We will try to have 90 percent of all our integration of job functions done before October. We expect 70 percent to occur within 60 days (of June 1),” he said. “We will try to do it as fairly as possible and will try to do this evenly across departments and companies.”
McData announced preliminary earnings of two to three cents a share for the first-quarter and revenues in the range of $98 million to $99 million. The results were in line with the company’s earlier forecast of $98 million to $103 million in revenue.
Kelley said the revised forecast allows McData to “springboard into the acquisition very strongly.”
“We were aggressively marketing our product solutions and software so customers knew that an investment in McData was an investment in their future,” he said. “With CNT, we will have the ability to service products that aren’t necessarily ours. It expands our ability on a worldwide basis to install, connect and manage the largest networks in the world.”
McData posted losses of $28 million in the last fiscal year, while CNT lost $103 million.
The acquisition, announced in January, is expected to help McData compete against Cisco Systems, a leading rival in a subset of the storage-networking market called directors. The refrigerator-sized devices connect computer servers and data-storage systems.
With market capitalization of $378.9 million, McData has struggled since Cisco entered the director market in 2002. The San Jose, Calif.-based Cisco has a market capitalization of $117.7 billion.
Steven Berg, senior analyst for Punk, Ziegel & Co., said acquisition and consolidation in the storage-network market is inevitable as companies try to compete against Cisco’s ability to provide a large number of products and services to customers.
“No matter what the other companies do, they don’t have the same amount of resources or the ability to make large packages with customers,” he said. “Cisco can leverage the relationships it already has. They can throw their weight around in the marketplace quite successfully.”
Staff writer Kimberly S. Johnson can be reached at 303-820-1088 or kjohnson@denverpost.com.
