SUBSCRIBE TO OUR NEWSLETTER
Stay informed! Sign up to get expert advice and insight delivered direct to your inbox
Cisco Storage Stays Mysterious
Cisco notes growth but not revenue figure, adding confusion to its SAN standing
August 12, 2004
4 Min Read
As is often the case in the aftermath of a Cisco Systems Inc. (Nasdaq: CSCO) earnings report, storage observers are left scrambling to decipher how much progress the company is really making with its SAN switches.
On a conference call with analysts last night, CEO John Chambers failed to disclose storage revenue in a quarter in which the company performed well overall (see Cisco Sales Hit $5.9B for Q4). Chambers did let drop that storage revenues grew 41 percent from last quarter and 180 percent from last year. But Cisco had not disclosed its revenue in the quarters to which Chambers referred.
However, sources last August revealed that Cisco did $14.5 million in revenue from storage for the preceding quarter (see Cisco Misses SAN Sales Target). Extrapolating from that figure places the most recent quarter at $40.6 million, up from $29.6 million in the previous quarter.
We do know that Cisco reported $40 million in storage revenue for the quarter that ended in January. So it appears that, while Cisco gained momentum entering 2004, it slid backward last quarter before climbing back to where it was at the start of the year.
Not everyone agrees with this view. Analysts' revenue estimates vary widely, from the low $30 million range to the mid $60 millions. Here's a sampling of the current theories:
"Revenue's up." Analyst Steve Kamman of CIBC World Markets, for instance, puts Ciscos storage revenue at $66 million. “We believe Cisco continues to have solid momentum… and is likely to continue to grow its market share,” Kamman wrote today in a research note. His estimates assume Cisco generated $47 million in storage revenue in the quarter that ended in May -- which leads back to opinion, not fact.
"Market share's up." Another analyst, Joel Wagonfeld of First Albany Corp., estimates $36 million in storage sales for the most recent quarter and $26 million the previous quarter. That figure's enough to increase Cisco’s share of the high-end director market from 18 percent to 23 percent, Wagonfeld asserts, mostly at the expense of director share leader McData Corp. (Nasdaq: MCDTA). Still, his estimate assumes all of Cisco’s sales were directors.
"Revenue's up, but market share isn't." Analyst Mark Kelleher of Adams Harkness calculates that Cisco's storage revenue might have hit $42 million last quarter, but he disagrees with Wagonfeld on market share. "We view Cisco's lack of traction as a positive for McData," he wrote in a research note today.
"Everything's down." One analyst, who asked not to be named, pegs Cisco’s storage revenue for last quarter at $34 million. He believes the company's hiding sales figures because they haven’t increased since the start of the year: “I think for all intents and purposes they are flattish.” This analyst also thinks Cisco may be trying to avoid drawing attention to $750 million Cisco paid for Andiamo in January, a price based on the $40 million revenue Cisco reported (see Cisco Buys Andiamo Finally and Cisco Wraps Up Andiamo Deal)."The purchase price for Andiamo was huge, especially compared to the market caps of Brocade and McData. Then all off a sudden the revenue dropped off the cliff the next quarter. Well, that would make that already controversial purchase price seem a bit more controversial,” he says.
There is clearly a mixed response to Cisco's mixed signals. When storage sales increased significantly in the quarter that ended in January, Chambers was happy to give numbers (see Cisco Storage Growing Up) and talked of storage being a potential $1 billion business (see Storage: A Cisco Billion Dollar Play). Since then, he’s skipped the details (see The Cisco Guessing Game and Cisco Call Puts SANs in Storage).
To confuse matters more, when Cisco didn’t break out storage numbers in May, its representatives instead pointed to an independent market research report by the Dell'Oro Group that pegged its first-quarter growth at 18 percent (see Report: Cisco SANs Grew 18%). But that report covered the first calendar quarter, while Cisco’s earnings report ran from February through April.
Why doesn't Cisco end the speculation and simply break out the numbers? Cisco says storage is merely one of many parts of its business and it can’t go into all of them in great detail. And it’s a small part -- a $40 million drop in a $5.9 billion bucket.
Still, tongues are wagging. Some think Cisco is biding its time until it comes out with its 16-port multiprotocol switch later this year, which could cut into Brocade’s market (see Cisco Demos New Interface).Whatever the reason for Cisco's reticence, we may know more when its major switch rivals Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) announce their earnings next week. If both show marked increases in switch sales, that could mean they cut into potential Cisco sales.
Could mean. Until some actual numbers are announced, nothing will be absolutely certain about Cisco's storage figures except their ability to generate controversy.
— Dave Raffo, Senior Editor, Byte and Switch
Read more about:
2004You May Also Like
More Insights
