Brocade's Slip-Sliding SilkWorm

Brocade Communications Systems Inc.s (Nasdaq: BRCD) long-awaited SilkWorm 12000 core switch is officially late, Byte and Switch has confirmed.

Merrill Lynch & Co. Inc. was expecting to receive the switch on November 15 but is still waiting for it, according to a source at Merrill Lynch who asked not to be named.

Brocade shipped the product to its OEM partners last month, but since then it appears to have hit a wall. EMC Corp. (NYSE: EMC) is one of Brocade’s largest OEMs “and is not comfortable with the product,” the source says (see Is Brocade's SilkWorm Losing the Thread?).

“EMC is delaying selling the switch, forcing Brocade to hold off as well, which is why we haven’t seen it yet,” he notes.

Brocade, which reports its fourth-quarter earnings Wednesday, declined to comment. EMC spokespeople were unable to confirm that they have received the switch.Equity research firm, Needham & Co. downgraded Brocade yesterday to a Hold rating from Buy. In a research note to investors, Glenn Hanus, principal analyst with the firm, said: “Our checks with Brocade over the last couple of months suggest delivery of its Core switch has been gradually slipping.”

Hanus was unable to provide specific details on what’s holding up the 12000, but he said he is also concerned by the eventual entry of Cisco Systems Inc. (Nasdaq: CSCO) as a direct competitor to Brocade, likely by the end of 2002.

Brocade’s late shipment of the switch was confirmed by Marc Staimer, industry analyst and president of Dragon Slayer Consulting, an independent storage consultancy.

“The 12000 is continually sliding to the right,” says Staimer, “All end-user betas are late.” He puts the delay down to Brocade not having a complete working version of the software yet.

The essential piece of code that is still missing, according to Staimer, is the ability to mesh the switches together, which provides a more flexible, non-blocking configuration. The current generation of the switch (SilkWorm 3800) is limited to cascading the switches together in a string. In this configuration, switch A talks to switch B, which talks to switch C. In a meshed network, any switch can talk to any other switch on the network.There are further signs that the engineering department at Brocade is struggling. Less than a month ago, the company sidelined co-founder and vice president of engineering, Paul Bonderson, to VP of strategic development. Brocade replaced him with Morris Taradalsky, previously head of engineering at Exodus Communications Inc. (OTC: EXDSQ). Taradalsky’s bio is not up on Brocade’s Website yet, although he is listed as VP of engineering.

”This is indicative that the powers that be are not happy with engineering,” says Staimer.

When Brocade reports its fourth-quarter earnings after the bell tomorrow, Wall Street will be listening closely for any insight into the rollout of the 12000. The faster Brocade can dig into McData Corp.’s (Nasdaq: MCDT) lead in the core switching market, the better chance it has of making an impact and subsequently adding to its revenues.

”Vague optimism will not be enough,” says Harsh Kumar at Morgan Keegan & Company Inc.

On Tuesday, Brocade’s stock traded down 0.10 (0.31%) to $31.84.— Jo Maitland, Senior Editor, Byte and Switch
http://www.byteandswitch.com