Report: Fibre Channel's Outbound

Memo to Fibre Channel vendors: These are the good old days.

Thats what a report on storage networking from The Linley Group

claims. The study forecasts a steep drop in the price of Fibre Channel products over the next few years as iSCSI and other new technologies eat into the SAN market.

Principal analyst Linley Gwennap says the major Fibre Channel switch players will likely move into the IP fray with no problem, and opportunistic startups could use the technology shift to their advantage, tapping price reductions in Fibre Channel components. Gwennap projects the selling price of HBAs and other Fibre Channel products to fall by at least 50 percent over the next three or four years.

Like many other analysts, Gwennap thinks Fibre Channel revenue will continue to grow near-term. By his lights, Fibre Channel unit sales will grow rapidly over the next two years, and revenue should grow by about 20 percent per year in 2004 and 2005 despite the price drop. But he expects growth to slow to single digits in 2006. By 2007, he expects IP SAN devices to outsell Fibre Channel SAN devices.

Who are the winners and losers in this scenario? Much depends on a company's investment in Fibre Channel for its own sake. “If you look at yourself as a SAN company, then IP is a different way to implement the SAN,” Gwennap says. “But if you look at yourself as a Fibre Channel company, then you’re going to get caught up in the technology switch.”Those with a lot to lose include Emulex Corp. (NYSE: ELX) and QLogic Corp. (Nasdaq: QLGC), which dominate today’s Fibre Channel HBA market. Gwennap expects their profits to erode as newer players take advantage of a supply of inexpensive chips to gain market share. A subsequent shift to IP SANs will further the erosion.

One thing: QLogic has an iSCSI HBA to cover itself, while Emulex just bought another FC switch maker (see Emulex Drops Cash for Vixel). “Emulex is fixated on Fibre Channel,” Gwennap says. “They just spent $300 million on Vixel. In effect, they doubled their bet on Fibre Channel.”

A growing handful of component suppliers could make hay from the Fibre Channel-to-IP switch. Gwennap's report cites three startups that sell network processors known as TCP offload engines (TOEs) -- Alacritech Inc., iReady Corp., and Silverback Systems Inc. The future could also hold opportunity for suppliers of intelligent switch processors, including Astute Networks Inc., iVivity Inc., and iStor Networks Inc.

“I would imagine some will do quite well,” Gwennap says. “But obviously there’s too many and they’re not all going to survive. The big question there is whether there will be acquisitions.”

— Dave Raffo, Senior Editor, Byte and Switch