McData Hops on QLogic Blades

McData Corp. (Nasdaq: MCDTA) is taking a shortcut into the blade switch arena through an expanded partnership with QLogic Corp. (Nasdaq: QLGC).

McData and QLogic have signed an exclusive deal to develop an embedded Fibre Channel switch for blade servers (see McData, QLogic Partner on Blades). The first switch is scheduled to go to OEMs for qualification this quarter, and McData and QLogic are hoping for general availability in the first quarter of next year.

The arrangement is the latest in an ongoing relationship. Last August, McData and QLogic announced interoperability between QLogic blade switches and McData switches and directors (see McData, QLogic Cross Blades).

With the new deal, QLogic supplies the embedded switch, McData adds management software, and the companies co-develop the firmware. The idea is to help McData make up valuable time against rival Brocade Communications Systems Inc. (Nasdaq: BRCD) in the blade switch market, while QLogic expands its embedded switch channel.

Up to now, Brocade and QLogic have been the major switch players in the blade server space. Brocade has OEM deals with IBM Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ) and hopes to cash in on a market it expects to hit $162 million by 2006 (see Brocade Outlines Market Plans, IBM, Brocade Tie SAN Knot, and Brocade & HP: Blade Brothers).QLogic was the first to ship a switch for blade servers through a deal with IBM in February of 2003, and developed a second-generation switch module for IBM blade servers last September (see QLogic Unveils IBM Blade Switch and QLogic FC Ships in IBM Blades)). So by aligning itself with QLogic, McData won't be as behind in the market as it previously appeared -- especially since Brocade's switches won't be available on HP blades before the second quarter of 2005.

For its part, QLogic should benefit from McDatas OEM relationships with IBM and and Dell Inc. (Nasdaq: DELL). And QLogic is banking on interoperability with McData’s installed switch base to help push its blade switches.

Still, there are "issues." By taking on a partner, McData will settle for less revenue on the blade switches it sells. QLogic will pay McData $4 million up front and an undisclosed royalty on units sold. The initial deal runs five years.

Also, the strengthening of the McData-QLogic blade alliance comes as QLogic tries to move more into the low-end switch space -- which makes it more of a McData competitor. Like its HBA rival Emulex Corp. (NYSE: ELX), QLogic has increasingly marketed low-end switches as HBA revenue growth has slowed (see HBA Guys Switch Gears).

The vendors acknowledge the lines in the sand. “We will continue to compete [with QLogic] in the standard switch space,” McData product manager Jim Nollsch says.Still, some industry insiders see McData and Qlogic having more to gain from cooperating than competing in the near future. After all, both battle more against Brocade than each other -- McData on the high end and QLogic in the SMB space.

“This is a nice way of McData getting into the blade server game, and I wouldn’t be surprised to see QLogic and McData further leverage each other’s core competencies,” says Evaluator Group senior analyst Greg Schulz. For instance, Schulz says, McData has routing technologies that QLogic lacks while QLogic is farther along on iSCSI than McData.

Other market activity could force the pair closer together as well. A spokesman for Cisco Systems Inc. (Nasdaq: CSCO), for instance, says the company is developing a switch for blades and discussing OEM deals with IBM and others, but would not divulge any timetable.

— Dave Raffo, Senior Editor, Byte and Switch