Cisco Misses SAN Sales Target

While Cisco Systems Inc.s (Nasdaq: CSCO) overall fourth-quarter earnings yesterday were a disappointment, its advances in storage may have incumbent storage switch vendors sweating bullets (see Cisco Increases Q4 Income).

However, the networking equipment giant did not meet its goal of doubling its storage business during the quarter, with orders for its MDS 9000 Fibre Channel switches increasing to about $14.5 million, from $10 million in the third quarter (see Cisco Reports $10M SAN Sales).

Still, that 45 percent increase should be enough to make both Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) feel very nervous.

"There’s no question that [Brocade and McData] are on guard," says Arun Taneja, an analyst with the Taneja group. "While McData has more to lose, their product line is very strong... [Cisco] could do some significant damage to a company like Brocade."

Cisco’s uptick in MDS 9000 orders followed aggressive price cutting, CEO John Chambers acknowledged on a conference call yesterday."We... made a decision to reduce prices by an average of approximately 30 to 35 percent with our continued focus on market share and profit contribution," he said.

Cisco, in conjunction with its OEM partners, increased the number of storage end users from 43 in the third quarter to 140 in the fourth. Customer wins in the quarter include AXA Group and Euronext LIFFE (see Cisco & IBM Jam on SANs and Cisco Touts Storage-Over-IP Project).

"If these are 140 large customers, that is very impressive," Taneja says.

Cisco has made no secret of the fact that it considers storage one of its next big frontiers for growth. The company names storage as one of only three advanced technology markets that had seen orders increase by more than 20 percent during the quarter. Storage -- along with IP telephony, optical, wireless LAN, security, and home networking businesses -- accounts for approximately 17 percent of the company’s product bookings, Chambers said.

Taneja says he suspects Cisco’s storage ambitions are much larger than just grabbing a chunk of the Fibre Channel director-class product market. That market, he points out, is worth only around $1 billion today. "Let’s say they squeeze out 15 percent market share," he says. "Within the context of Cisco, that’s a pimple on a dimple."The question is: How will Cisco expand its storage product portfolio? Taneja guesses that the company will increase its emphasis on iSCSI (see Cisco Implants IP in SANs). He also raises the prospect -- which has been the source of much speculation in the industry -- that Cisco may possibly start selling some sort of storage array.

Cisco has regularly insisted that it has no interest in delving into the disk storage market (see our interview with Soni Jiandani, VP Marketing, Storage Tech Group, Cisco). But then again, not many predicted it would enter the Fibre Channel switch space, either.

— Eugénie Larson, Senior Editor, Byte and Switch