Cisco & EMC Close NAS Deal

Cisco Systems Inc. (Nasdaq: CSCO) and EMC Corp. (NYSE: EMC) officially became NAS partners today, ending weeks of speculation.

As anticipated in Byte and Switch last week (see Cisco Said to Resell EMC NAS), Cisco will resell and support EMC's Celerra NAS, specifically the NS500 and NS700 NAS filers beginning in the second quarter of the year(see Cisco, EMC Seal NAS Deal and Cisco NAS Options Mulled).

Cisco will brand the EMC NAS systems and integrate them with its own Cisco File Engine wide area file services (WAFS) appliance, which Cisco launched last month (see Cisco Wades Into WAFS). Cisco got into the nascent WAFS game by picking up Actona for $82 million in June (see Cisco Acts on Actona).

Most agree that WAFS is a good fit for NAS. WAFS appliances replace file servers at branch offices so workers in those branch offices can access storage from the corporate data center. That improves performance at remote sites, and requires more NAS file servers to deal with increased demand at the data center.

The deal has obvious benefits for EMC and Cisco. It gives EMC wider distribution for its NAS systems, and it helps widen Cisco's storage presence.For Cisco to reach CEO John Chamberss goal of making storage a $1 billion annual business, it needs to go beyond the SAN switches it has sold primarily through EMC, IBM Corp. (NYSE: IBM), Hewlett-Packard Co. (NYSE: HPQ), Hitachi Data Systems (HDS), and Sun Microsystems Inc. (Nasdaq: SUNW). (See Storage: A Cisco Billion Dollar Play.)

Yet there are risks involved. For Cisco, those risks are mainly in its relationships with other partners. IBM, HP, and Sun all sell NAS. Now, as EMC's partner, Cisco is in competition with them, as well as relying on them to resell its MDS 9000 line of FC switches. NOTE: All of the major storage OEMs sell switches from at least two vendors, and most sell Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) along with Cisco.

EMC has its own set of benefits and risks. Financial analysts suspected that EMC might be leery of deepening its partnership with Cisco, because of industry talk that Cisco intends to eventually sell its switches directly instead of through OEMs. But switch business aside, its NAS deal with Cisco has little downside for EMC.

The Cisco-EMC partnership puts the heat on Network Appliance Inc. (Nasdaq: NTAP), which battles EMC for dominance in the NAS space.

Financial analyst, Kaushik Roy of Susquehanna Financial Group, doesn’t think Cisco will sell enough of EMC’s NAS to hurt NetApp much at the start. Roy points out that Cisco has no experience selling storage directly. “Thus, we believe Cisco salespeople are unlikely to sell many EMC NAS systems,” he wrote today in a research note.Also, the EMC deal doesn’t necessarily close Cisco's doors to NetApp. John Henze, director of marketing for the Cisco File Engine, says the deal with EMC is non-exclusive. That means Cisco can partner with NetApp or one of the other NAS vendors.

Although NetApp doesn’t sell much SAN gear, it has a strong relationship with Cisco. The two have a common board member in Don Valentine, and have pondered partnerships over the years (see Cisco to Slot In NetApp?).

NetApp VP of strategic marketing Patrick Rogers points out that “Cisco's non-exclusive reseller relationship with other storage vendors does not preclude a future reseller relationship with NetApp. In any future scenario, I anticipate our relationship with Cisco only getting stronger.”

NetApp won't have problems finding alternative partners in the meantime. Startups such as DiskSites Inc., Riverbed Technology Inc., Signiant Corp., and Tacit Networks Inc. also sell WAFS product, and at least a few have been pursuing similar deals with NAS vendors (see Watch Out for WAFS). The Cisco-EMC deal could help one or more of the startups to make a deal, or knock them out of the game, if Cisco lines up other major OEM deals.

“The bad thing about having Cisco in the [WAFS] market is you have to compete with them. But the good thing is they bring attention to our market and open up opportunities,” Tacit President Chuck Foley says.— Dave Raffo, Senior Editor, Byte and Switch