Cisco NAS Options Mulled

Cisco Systems Inc. (Nasdaq: CSCO) may enter the NAS market in 2005, and analysts are busy speculating on potential partners.

In a note to clients today, analyst Thomas Curlin of RBC Capital Markets says the firm thinks Cisco plans to offer NAS next year in order to bolster storage numbers. Curlin says Cisco needs a partner to do this, and he believes that partner will be EMC Corp. (NYSE: EMC).

EMC tops the list of suppliers who resell the most Cisco SAN switches, thanks in part to EMC's SAN expertise. The other likely candidate, Network Appliance Inc. (Nasdaq: NTAP), hasn't shown up in the top handful of Cisco's switch resellers. By most accounts, NetApp also addresses a slightly smaller enterprise scenario.

Curlin is so convinced of an EMC/Cisco NAS partnership that he's downgraded NetApp, whose shares he thinks may be overvalued, since NetApp shareholders banked on a future that could be threatened by a Cisco/EMC duet.

"We continue to believe NTAP is well positioned for strong growth in the coming years as a pure play on modular storage and Information Lifecycle Management with an outstanding management team," Curlin writes. "Yet the prospect of a united EMC/Cisco attack calls into question the prudence of paying for 2009 revenue targets in 2005."Curlin's view that EMC and Cisco may pair up is shared by others. "I've heard it and I think it will probably come about," says one industry analyst, who asked for anonymity. To him, EMC makes more sense than NetApp or other partners because EMC has the best channels for Cisco's foray into NAS.

But a third source, a financial analyst to asked not to be named, thinks there's as much chance that NetApp -- or others -- could partner with Cisco as with EMC. This analyst has heard that EMC may be leery of getting overly involved with Cisco, since that could produce competitive or strategic problems later on.

Curlin acknowledges there are many Cisco/NetApp attractions, including a common board member in Don Valentine and industry whispers about various potential "strategic combinations" that have continued for a long time (see Cisco to Slot In NetApp?). But Curlin maintains that a pairing of NetApp and Cisco "directly conflicts with Cisco's attempts to penetrate the SAN switching market," which is a top priority -- a priority that EMC is better able to help it achieve.

Meanwhile, there are other possibilities. If Cisco is indeed looking for NAS partner, there are a fleet of startups that may be eager for the job, including the likes of Acopia Networks Inc. and Isilon Systems (see NAS Evolution: The Insider Scoop). Curlin thinks this is an unlikely scenario, since Cisco's looking for immediate traction in the NAS market, which a startup can't offer.

Cisco and NetApp did not return requests for comment at press time; EMC declined to comment.Mary Jander, Site Editor, Byte and Switch