HDS to Build SAN Switch?

Fibre Channel switch vendors took a dive on the Nasdaq Tuesday on rumors that Hitachi Data Systems (HDS) is developing a SAN switch that will compete in the Fibre Channel space as well as in new markets for storage over IP.

HDS presently OEM's 1-Gbit/s and 2-Gbit/s FC switches from Brocade Communications Systems Inc. (Nasdaq: BRCD).

McData Corp.s (Nasdaq: MCDT) stock plummeted over 10 percent to $24.67 a share. QLogic Corp. (Nasdaq: QLGC) shares were down 4.2 percent to $49.01, and Inrange Technologies Corp. (Nasdaq: INRG) dropped 2.6 percent to $13.01. Brocade's stock fell 4 percent to $33.60 per share, although analysts said this could also be a knee-jerk reaction to the $500 million in debt financing it announced this morning (see Brocade to Raise $500M in Bond Offering). Hitachi Ltd. (NYSE: HIT; Paris: PHA) stock was up 3.22 percent at $72.39 a share. HDS is an wholly owned subsidiary.

The rumor du jour appears to stem from an investor note issued by Credit Suisse First Boston, which states that the firm is “cautious” on McData and Brocade as it is hearing that Hitachi has plans to enter the SAN switching market in the second half of 2002.

HDS did not return calls for comment by press time.Mark Kelleher, analyst with First Albany Corp. is skeptical of the rumors. "The major OEMs, IBM Corp. (NYSE: IBM) and EMC Corp. (NYSE: EMC), would not buy from a competitor...but then again, bad strategic decisions are made every day."

There is a glimmer of evidence to support CSFB’s speculation that HDS may be ready to jettison it's relationship with Brocade. When HDS recently requested permission from Brocade to submit the 2-Gbit/s switch it OEMs for independent testing, Brocade vetoed the request (see Brocade Balks at 2-Gbit/s Test -- Again and Brocade Ponders 2-Gbit/s Test).

“What’s up with that!” said a spokesperson for HDS.

Meanwhile, other vendors made moves that appeared to contribute to the market shakeup. McData issued a press release this afternoon stating that it is “intensifying its focus” on the low-end of the market by creating a “switch product group” to “strengthen the company's presence in this area.” (See McData Fights Back).

The timing of McData’s announcement just after the rumors hit the Street suggesting HDS’s move into this space are just a coincidence, says VP of the storage product group, Doug Rainbolt. “We are not in desperate mode, success has lead to this change,” he said.McData says the new group will focus specifically on the channel to market for its ES1000 and 3000 series switches and all future products in this space. “The demand for smaller SANs is increasing and we believe the systems integrators and the VARs will see an increasing percentage of these revenues,” he said.

Traditionally, the low end is Brocade’s territory. Then again, Brocade is taking a crack at McData’s stronghold in the director-class space (see Brocade, McData Send Mixed Messages).

— Jo Maitland, Senior Editor, Byte and Switch
http://www.byteandswitch.com