Cisco Storage Growing Up

Cisco Systems Inc. (Nasdaq: CSCO) took its storage networking financial numbers out of the closet today when CEO John Chambers claimed $40 million in revenues for the last quarter and approximately 540 customers for its storage group (see Cisco Q2 Profits Rise).

Cisco did not break out its storage numbers in the previous quarter when Chambers admitted sales of its Fibre Channel switches failed to meet targets due to manufacturing and supply issues, as well as a lengthened sales cycle (see Cisco Still a Kid in Storage). Chambers said those problems were fixed this quarter.

"After a slow start, our storage networking picked up dramatically, Chambers told analysts on a conference call. He said storage networking made “obvious market share gain” and has won industry acceptance.

"Given the unique issues last quarter I would characterize our run rate this quarter in the low $30 million range, an approximate 70 percent-plus sequential increase," Chamber said. Cisco reported an 80 percent increase of customers from the previous quarter.

Chambers said the Advanced Technology group made market-share gains across the board. The group has six product lines: storage, IP telephony, optical networking, home networking, security, and wireless. “Advanced Technology appears to be working well."Even before making a dent in sales, Cisco had a negative effect on the switchmakers that dominated the market before its arrival. McData Corp. (Nasdaq: MCDTA) and

Brocade Communications Systems Inc. (Nasdaq: BRCD) lowered prices to its OEMs to keep Cisco from eating into their market share, and that was reflected in their bottom lines (see Did Brocade Blow an Opportunity? and McData Maudlin Over Price Pressure). McData CEO John Kelley has often identified Cisco, rather than Brocade, as his prime competition because Cicso has focused more on the director switch category where McData is the leader. Brocade remains the leader in the low-end and midrange markets (see Brocade & McData's Paths Diverge).

Chambers makes it clear he expects to emerge as a winner, identifying storage as a possible $1 billion market for Cisco (see Storage: A Cisco Billion Dollar Play). Brocade will announce its quarterly earnings on Feb. 11; McData, which laid off roughly 9 percent of its staff last week, will announce on Feb. 26 (see McData McDownsized).

Cisco reported net income of $1.3 billion or $0.18 earnings per share, beating First Call estimates by a penny and up from $1.2 billion and $0.17 a year ago. Its overall revenue for the quarter was $5.4 billion, up 14.5 percent from last year.

Unlike other storage execs on recent earnings calls who forecasted an uptick in spending for 2004, Chambers sounded cautious about the near future. He claimed the recovery's momentum is "still not as strong as we'd like." (See Storage Bigs Brash on Budgets and Cisco Stays Cautious).

— Dave Raffo, Senior Editor, Byte and Switch0