Cisco posted some impressive growth in the SAN switch market in its most recent quarter, enough to make one Wall Street firm grow cautious on the company's rivals.Schwab Soundview believes Cisco's 70-80% sequential quarterly growth in SAN switch sales and customers could be bad news for rivals McDATA and Brocade .Cisco CEO John Chambers said the company's storage business "picked up dramatically" in the quarter ended Jan. 31, with more than $30 million in revenues and 540 customers at quarter's end.
Soundview analyst Omar Al-Midani wrote that Cisco "may have gained more than seven points of share" from McDATA and Brocade last quarter. "Cisco is making it increasingly more difficult for McDATA and Brocade to grow revenues," he continued. "While Cisco's focus on the high end makes McDATA more vulnerable, we expect that Brocade also felt some impact from Cisco's strength in the quarter."
Al-Midani estimates that Cisco now holds about a 15% share of the SAN switch market, compared to 8% last quarter and 4% three quarters ago, "representing a dramatic acceleration in its storage business."
"If Cisco merely achieves 25% share of the storage hardware market by 2006, it could erode five to 10 points of annual growth from Brocade and McDATA combined," says Al-Midani.
Cisco's entry into the storage switch market has created pricing pressuresand squeezed margins at both McDATA and Brocade.
Just last week, McDATA announced a 9% workforce reduction, which Al-Midani believes "signals the company may now be more cautious about its long-term growth prospects and needs to adjust its operating expenditure accordingly."
Not all analysts are as alarmed at Cisco's gains in the SAN switch market.
"Well, in the scheme of the whole switch market, it's not like they have gained overwhelming share," says Nancy Marrone-Hurley, senior analyst at Enterprise Storage Group.
Marrone-Hurley told Enterprise Storage Forumthat Cisco is "seeding accounts with one or two 16-port switches, more proof of concept in either green field or installed SAN accounts. For instance, a company may already have a large McDATA SAN, but is a Cisco shop otherwise. Cisco will get the customer to try a MDS in a SAN island, either remote office or workgroup, and try to get them to someday migrate over to Cisco."
So while Cisco may have 540 customers, "that doesn't mean those customers have large Cisco SANs installed," says Marrone-Hurley. "Certainly they do have some large-scale deployments, but I would bet that a majority of the 540 are 'seed' accounts."
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