Brocade Busts Out 10-Gbit/s Plans

Brocade unveiled plans to break into 10-Gbit/s Ethernet during its analyst meeting yesterday, and explained how it is dealing with the challenge of Cisco in the aftermath of Brocade's $973 million McData acquisition. (See Brocade Closes Out McData and Brocade Completes McData Buy.)

Speaking at the meeting in San Jose, Calif., Brocade CEO Michael Klayko explained that the vendor will "layer out" a road map for 10-Gbit/s Ethernet products in the second half of this year. This, he added, will be built on technology from the vendor's recent acquisition of iSCSI NIC specialist Silverback. (See Brocade Grabs Silverback and Brocade Buys SilverBack.)

Brocade expects to see initial 10-Gbit/s Ethernet revenue sometime in 2008, although Klayko promised that the firm is not planning a total departure from its Fibre Channel roots. "We see it as an extension to Fibre Channel. We do not believe that people will throw away their 13 million ports of SAN," he said.

More and more vendors are cranking up their efforts around 10-Gbit/s Ethernet, looking to tap into customer demand for low-cost storage fabrics such as iSCSI. (See 10-Gig iSCSI SANs Set for Takeoff, Force10 Round Hits $113M , 10-Gig IP SANs Hit Bleeding Edge, 10GBase-T Adapters Debut, and The iSCSI Subtext to 10-GigE.)

The topic of Cisco cropped up repeatedly during last night's event, and analysts grilled Brocade about the threat posed by the networking giant. Cisco, a major rival of Brocade's, has been growing its storage business over recent months, and Brocade confirmed that the acquisition created some nervousness amongst users. (See Cisco: Storage Stars in Earnings.)Brocade's vice president of worldwide sales Ian Whiting admitted that some McData customers had "opened the door" to Cisco during the acquisition process, although he explained that Brocade "stopped that train."

Reassuring McData customers that their existing support contacts would remain in place was a key part of this effort, according to the exec. "We basically blitzed the marketplace. We went out and said farewell to our families for a number of weeks," he said.

This situation was complicated by the deal coming under scrutiny by the Federal Trade Commission, the U.S. government agency charged with anti-competitive oversight. (See Brocade-McData Draws Extra Scrutiny.) "We were in the ring with our hands tied behind our back," said Klayko, adding that Brocade was limited in what it could tell McData customers at that time.

This all changed Jan. 29 when the acquisition was completed. Whiting explained that Brocade has not lost any McData customers since then, but he didn't reveal how many users jumped ship prior to closing the deal.

At least one analyst cited Brocade's financial outlook as evidence of a solid McData integration, citing the vendor's decision to raise its annual earnings estimate to between 49 and 51 cents, from 47 to 49 cents. "This represents yet another positive indication of the company's integration work on McData," said A.G. Edwards analyst Aaron Rakers in a note released yesterday.R.W. Baird analyst Daniel Renouard agreed that initial signs from the McData acquisition are encouraging, although he warned that Brocade is not out of the woods yet. "Despite very well-prepared integration planning and execution to date, we remain wary of possible integration issues given the sheer scale of the acquisition," he said in a note today.

The newly merged firms may nonetheless find strength in adversity. "We do believe the fight against common enemy Cisco has become a rallying cry for the combined company that may overcome some cultural differences," said Renouard.

Certainly, the full revenue impact of the McData acquisition is yet to be revealed. Brocade posted a solid set of results in its most recent quarterly report although the vendor closed its first quarter 2007 just two days before finalizing its purchase of McData. Figures from the combination will come next quarter. (See Brocade Boasts Big Quarter and Brocade Reports Q1.)

Brocade, which touts a set of products for file sharing, may also receive a boost from the launch of Microsoft's forthcoming Longhorn operating system. The vendor is one of Redmond's key partners for WAFS technology and A.G. Edwards' Rakers thinks that this could provide a revenue boost. (See Brocade Intros Software WAFS.) "Brocade's ability to have its file services tightly integrated with Microsoft solutions does look to offer a meaningful differentiation versus competitors in this emerging market," he said.

Execs on last night's call also touched on the topic InfiniBand, although they refused to make a firm commitment to the technology. (See InfiniBand Take 2, Interop: Mixed Messages on InfiniBand, and InfiniBand Ambivalence.) Don Jaworski, the vendor's vice president of product development, said that although it's committed to 10-Gbit/s Ethernet, Brocade would also consider InfiniBand. "We are somewhat agnostic about the protocol -- we think that it's 10 GigE, but, if it's InfiniBand, we will go there," he said, adding that this decision will be governed by customer demand.The market was less than overwhelmed by Brocade's upbeat message at its analyst day. In early trading this morning, shares of Brocade dropped 30 cents (3.05 percent) to $9.55.

James Rogers, Senior Editor Byte and Switch