Another Look at Cisco

Not long ago, the storage world questioned whether Cisco Systems Inc. (Nasdaq: CSCO) was really making it in Fibre Channel SAN switches (see The Cisco Guessing Game). Now, Cisco appears to be turning that question on its ear.

There are still two schools of opinion about the networking giant's ultimate mark on storage, but few debate Cisco's ability to influence the market particularly if that market doesn't really know where it's going anyway.

As close as we can reckon, Cisco's true position in SANs is that of the glass half empty or half full: It depends on your perspective. Cisco’s rivals and detractors say the networking giant remains a dwarf in storage, barely making a dent on market share – especially when compared to Cisco’s standing in its other technology areas (see McData Boss Yawns at Cisco , Cisco Call Puts SANs in Storage, and The Cisco Guessing Game).

But Cisco's growing list of supporters say the glass is half full, that it has come a long way in a short time to grab 12 percent of the overall SAN switch market that had been dominated by Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA).

Though Cisco storage remains a long way from reaching its goal of becoming a $1 billion business, it seems to be headed in the right direction. Dell'Oro Group, a market research firm, placed Cisco’s first-quarter 2004 revenues at $36.7 million – up 18 percent from the previous quarter (see Report: Cisco SANs Grew 18%).So far, no one's really claiming that Cisco's gains reflect technological innovation over Brocade or McData. But it's clearly enjoying the advantage of size, weight, and confidence, and its competitors are busy restructuring their messages to meet the challenge (see VP Details McData Software Makeover ).

“Significantly larger and more diversified than its competitors, Cisco is better able to withstand the current price reductions in its pursuit to establish itself as a leader in the storage networking market,” asserts Yankee Group senior analyst Stephanie Balaouras in a research report on the Fibre Channel storage market.

And Cisco has every intention of using its data networking influence to muscle its way further into storage networking. Cisco executives, including Keith Zubchevich, Cisco's director of advanced technologies, worldwide channels, say they have no doubt that entering the storage market was the right decision.

“We went from zero to 17 percent [director switch market share] in a billion dollar market in three quarters. That’s impressive. Our billion dollar businesses were not built in three quarters,” said Zubchevich in an interview with Byte and Switch a couple of weeks ago. And when asked if he was pleased with Cisco's storage progress, he said, "Absolutely!"

CEO John Chambers has also given storage thumbs up. Last month at a Bear Stearns Technology Conference, Chambers said he was "very comfortable with the year-over-year and quarter-over-quarter growth" of storage.To Cisco's brass, being a data networking company is a logical jumping off place for SAN dominance. “Cisco has a unique position in storage,” Zubchevich says. “We can say, ‘Not only do I understand your pain, I’ve lived it in the past. Let me tell you how we solved it in the past.’ Brocade and McData have done a great job taking storage networks from zero to over $1 billion. They brought storage expertise. They delivered on the product. Now we say, ‘We’ll deliver on the network expertise.’ ”

In effect, Cisco's turning the question of how it's doing in Fibre Channel SANs into: How are Fibre Channel SANs doing on Cisco networks?

Key to the strategy is the clever use of partnerships. The next step in the Cisco sales plan is a storage specialization training program aimed at generating more channel sales (see Cisco Specializes in Storage). The training program certifies Cisco’s reseller partners to insure they have overall network and storage expertise.

Cisco is being careful not to step on its existing partnerships with what it calls its Original Storage Manufacturers (OSM) lineup -- EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), Hitachi Data Systems (HDS), and IBM Corp. (NYSE: IBM). Partners in the storage specialization program must have a reseller agreement with one of the OSMs, which remain the lifeblood of selling SAN switches.

“We partnered with OSMs who know storage... EMC, IBM, and Hitachi know storage far more than McData and Brocade,” declares Zubchevich.As Cisco's strategy plays out against the backdrop of Brocade and McData's struggles to maintain and develop their market footholds, it's not certain whether enterprise customers will buy increasingly into Cisco's view of SANs as an extension of corporate nets. In a way, that's not the question. Cisco's got the wherewithal to continue hammering away at the SAN market until other players give out or give way. That's the action that will shape the future market.

— Dave Raffo, Senior Editor, Byte and Switch