Cisco and EMC Edge Closer

Cisco Systems Inc. (Nasdaq: CSCO) is poised to announce its certification and resale relationship with EMC Corp. (NYSE: EMC) as soon as this week, according to Wall Street sources -- and Cisco may also be working on a custom-built SAN switch at the request of the storage giant.

A reseller deal between Cisco and EMC has been in the pipe for some months, but the qualification process has been long, because of rigorous testing on EMC's part, according to EMC representatives. In a note yesterday, Lehman Brothers said the two companies may announce a "certification/resale" deal this week. Cisco and EMC declined to comment officially on the status of their negotiations.

IBM Corp. (NYSE: IBM), Hitachi Data Systems (HDS), and Hewlett-Packard Co. (NYSE: HPQ) have all announced their intentions to resell Cisco's MDS 9000 Fibre Channel switches soon (see IBM Tells Cisco: 'Let's Go!', HP Next to Green-Light Cisco?, and HDS Certifies Cisco MDS 9000).

Analysts are encouraged by the news that EMC and Cisco seem to be moving closer to a deal. The majority of FC switches are sold through the major storage systems vendors, so analysts say it is critical for Cisco to gain the backing of EMC, the dominant SAN infrastructure supplier in the marketplace. "We consider this development a strategic positive, following what has been a somewhat lengthy negotiation process," says Lehman analyst Tim Luke.

Digging into exactly what Cisco has had to do to win this support, however, has turned up some interesting information.According to RBC Capital Markets, Cisco plans to enter the market with a fixed-configuration, 40-port, Layer 2 Fibre Channel switch this summer, targeting more cost-sensitive enterprise applications. "We believe a multi-pronged pincer movement will include a new low-cost, fixed-port edge switch, the already announced 9506 and 9513 core switches, and Ficon connectivity," RBC said in a note to investors last week.

The firm believes the new fixed-port configuration switch is targeted at Brocade Communications Systems Inc.'s (Nasdaq: BRCD) installed base in the edge switch segment. "It is expected to include 40 ports in a 2U form factor at a price-per-port well below current Brocade [SilkWorm] 3900 levels," the RBC note said.

According to RBC, the per-port pricing is key. "We believe the primary goal behind a fixed 40-port Fibre Channel switch from Cisco is to drive down pricing in the midrange switch segment," says Steve Denegri, an RBC analyst. The fixed-port configuration is especially telling, says RBC, as it signals Cisco's intent to engage in the entire switch market.

It's also interesting in the light of comments made by EMC CEO Joe Tucci during an interview with Byte and Switch last month. He wasn't overly impressed with Cisco's pricing strategy (see our interview with Tucci and EMC Holds Off on Cisco).

"Unless they change their pricing, Andiamo is going to be a director-class offering." Tucci said, adding, "We are qualifying it as a director."Could the 40-port switch be a sweetener to get EMC to move ahead and qualify all the Andiamo family? Another Wall Street source, who did not want to be named, says "apparently, EMC requested an exclusive" from Cisco -- a request Cisco initially declined to grant. [Ed. note: Perhaps the thinking has changed in San Jose since that exchange?]

This piece of the picture is unclear at this stage, but the new product is expected to sell at less than $1,000 per port -- significantly lower than Cisco's MDS 9216, which is expandable up to 48 ports. While Cisco hasn't disclosed pricing yet, IBM's list price for the 9216 is $52,263, or $3,266 per port (see Cisco Gets Set).

Cisco insiders say it's way too deep into the roadmap to comment on this product. "Things get placed in the roadmap but get dropped off quietly... I'm not saying it'll happen here, but I don't want to take that chance," says a Cisco insider familiar with the company's plans.

The timing on EMC qualification could happen as soon as this week, as Cisco is expected to make an announcement at the CeBIT tradeshow in Germany. Rumor has it the company will also announce its virtualization blade at the show, which it's been hard at work on with Veritas Software Corp. (Nasdaq: VRTS) for the past nine months (see Veritas Supports Cisco MDS 9000 and Sprint Puts Cisco to Test).

Jo Maitland, Senior Editor, Byte and Switch