Emulex Sticks With Fibre Channel

With the high-end HBA market stalled, Emulex Corp. (NYSE: ELX) today laid out its strategy to attack the lower end of the market while maintaining a product diet high in Fibre.

Speaking at the Credit Suisse First Boston Corp. Technology Conference today, Emulex executives said Fibre Channel vendors will probably have to cut the price of their storage gear in half to successfully capture the SMB (small and medium-sized business) market.

While many vendors see iSCSI as the best way to reduce price, Emulex plans to do it through Fibre Channel initiatives, including a new generation of low-cost embedded switches and partnerships with other storage vendors on products tailored for the low end.

The market is pushing down into the midrange and SMB market,” CFO Michael Rockenbach says. “Customers there are more focused on cost and ease of use. That market is just starting to develop. Our objective is to grow through volume.”

Emulex executives spoke on the same day that market research firm Dell'Oro Group

reported industry-wide HBA revenues have declined sequentially (see Dell’Oro Says Director Sales Grew). The decline continues a trend that has contributed to Emulex experiencing two straight quarters of disappointing revenue (see Emulex Drops Revenue Again).Like its HBA rival QLogic Corp. (Nasdaq: QLGC), Emulex has been selling more low-end switches to compensate for lackluster HBA sales (see HBA Guys Switch Gears). Emulex claims it has shipped more than 3 million ports of the InSpeed embedded switch acquired from Vixel, but that switch brings less profit than HBAs (see Emulex Drops Cash for Vixel).

On Monday, Emulex announced its new FibreSpy family of embedded switches built on the Vixel technology that support 4 Gbit/s (see Emulex Goes 4-Gig). One of the new switches is aimed at low-end storage arrays because it plugs into the array and eliminates the need for external switches. That allows storage companies to plug in more drives or connect other devices to the array.

The other new FibreSpy embedded switch replaces the arbitrated loop protocol that limits Fibre Channel back-end subsystems to 126 drives. Emulex bills that switch as a tiered storage component.

“It gives you more flexibility because you can build a cluster of devices with more than 126 drives per loop,” says The Linley Group senior analyst Sanjay Iyer, who claims Broadcom Corp. (Nasdaq: BRCM) is the only other vendor with a similar device (see Broadcom Barrels Into 4-Gig).

And what about iSCSI? Emulex executives weren’t asked about iSCSI at the CSFB conference, and they certainly didn’t bring it up. But analyst Arun Taneja of the Taneja Group says its low-cost Fibre Channel initiatives are obviously an answer to iSCSI -- or at least, are meant as such.“Fibre Channel guys are under pressure to bring Fibre Channel down in price and improve its ease of use,” Taneja says. “Especially Emulex. The other Fibre Channel players are at least playing a role in the iSCSI side. Emulex is looking to bring the price down instead with its new [SMB FibreSpy] chip.”

As for SMB partnerships, Emulex President Jim McCluney pointed to an agreement with switch vendor Brocade Communications Systems Inc. (Nasdaq: BRCD) to co-develop a SAN management wizard.

Emulex also is participating in Microsoft Corp.’s (Nasdaq: MSFT) Simple SAN initiative (see Brocade & Emulex Shake Hands). However, QLogic beat Emulex to the punch by getting its HBAs embedded in Hewlett-Packard Co.’s (NYSE: HPQ) entry-level system built on Simple SAN that started shipping this week (see HP and QLogic Aim Low and HP SMB SAN Integrates QLogic).

McCluney also points to 4-gig gear as a way to break his company’s sales doldrums. “It looks like there’s a good head of steam into 4-gig now,” he says. “We’re looking for 2005 to be a big growth year.”

— Dave Raffo, Senior Editor, Byte and Switch0