1009626--1/9/2007--BROCADE_COMMUNICATIONS_SYSTEMS

related topics

{product, market, service}

{regulation, change, law}

{customer, product, revenue}

{acquisition, growth, future}

{stock, price, operating}

{property, intellectual, protect}

{system, service, information}

{cost, contract, operation}

{personnel, key, retain}

{provision, law, control}

{product, liability, claim}

{cost, operation, labor}

{condition, economic, financial}

General customer uncertainty related to the merger could harm Brocade and the combined company. The required regulatory approvals may not be obtained or may contain materially burdensome conditions. Failure to complete the merger could negatively impact the stock price and the future business and financial results of Brocade and McDATA. Integrating Brocade and McDATA following the merger may divert management s attention away from the combined company s operations. Because the market price of Brocade common stock will fluctuate, the value of the Brocade common stock issued in connection with the merger will not be known until the closing of the merger. Risks Related to Brocade s Business Brocade s future revenue growth depends on its ability to introduce new products and services on a timely basis and achieve market acceptance of these new products and services. Brocade is currently expanding its product and service offerings to include software applications and professional and support services, and Brocade s operating results will suffer if these initiatives are not successful. Increased market competition may lead to reduced sales, margins, profits and market share. Brocade depends on OEM partners for a majority of Brocade s revenues, and the loss of any of these OEM partners or a decrease in their purchases could significantly reduce Brocade s revenues and negatively affect Brocade s financial results. The prices of Brocade s products have declined in the past, and Brocade expects the price of Brocade s products to continue to decline, which could reduce Brocade s revenues, gross margins and profitability. The loss of Brocade s third-party contract manufacturer would adversely affect Brocade s ability to manufacture and sell Brocade s products. Brocade is dependent on sole source and limited source suppliers for certain key components. Brocade s business is subject to cyclical fluctuations and uneven sales patterns. Brocade has been named as a party to several class action and derivative action lawsuits arising from Brocade s internal reviews and related restatements of Brocade s financial statements during 2005, and Brocade may be named in additional litigation, all of which could require significant management time and attention and result in significant legal expenses as well as result in an unfavorable outcome which could have a material adverse effect on Brocade s business, financial condition, results of operations and cash flows. As a result of Brocade s internal reviews and related restatements, Brocade is subject to investigations by the SEC and Department of Justice, or DOJ, which may not be resolved favorably and have required, and will continue to require, a significant amount of management time and attention and accounting resources and legal expense, which could adversely affect Brocade s business, results of operations and cash flows. Brocade s quarterly and annual revenues and operating results may fluctuate in future periods due to a number of factors, which could adversely affect the trading price of Brocade s stock. The failure to accurately forecast demand for Brocade s products or the failure to successfully manage the production of Brocade s products could negatively affect the supply of key components for Brocade s products and Brocade s ability to manufacture and sell Brocade s products. Brocade may not realize the anticipated benefits of past or future mergers and strategic investments, and integration of acquired companies or technologies may negatively impact Brocade s business. If Brocade loses key personnel or is unable to hire additional qualified personnel, Brocade s business may be harmed. Brocade is subject to environmental regulations that could have a material adverse effect on Brocade s business. Brocade s revenues will be affected by changes in domestic and international information technology spending and overall demand for storage area network solutions. Brocade s failure to successfully manage the transition between its new products and its older products may adversely affect Brocade s financial results. Brocade s business is subject to increasingly complex corporate governance, public disclosure, accounting, and tax requirements that have increased both its costs and the risk of noncompliance. Brocade s future operating expenses may be adversely affected by changes in Brocade s stock price. Changes in accounting rules, including the expensing of stock options granted to Brocade s employees, could have a material impact on Brocade s reported business and financial results. Brocade has extensive international operations, which subjects it to additional business risks. Undetected software or hardware errors could increase Brocade s costs, reduce Brocade s revenues and delay market acceptance of Brocade s products. Brocade relies on licenses from third parties and the loss or inability to obtain any such license could harm Brocade s business. Third-parties may bring infringement claims against Brocade, which could be time-consuming and expensive to defend. Business interruptions could adversely affect Brocade s business. Provisions in Brocade s charter documents, customer agreements, and Delaware law could prevent or delay a change in control of Brocade, which could hinder stockholders ability to receive a premium for Brocade s stock.

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1009626--1/9/2007--BROCADE_COMMUNICATIONS_SYSTEMS_INC