Ken Koch, President and CEO, Inrange

Byte and Switch: What do you make of Brocade Communications Systems Inc.'s [Nasdaq: BRCD] acquisition of Rhapsody Networks? What kinds of acquisitions is Inrange considering in this area? [See Brocade Scoops Up Rhapsody and Brocade Stock Not Rhapsodic.]Koch: We're always looking for smart acquisitions. My takeaway on the Rhapsody acquisition is that it certainly reflects that we're undervalued, when you look at our market cap [which is currently around $210 million] and the fact that Brocade paid $175 million for a prerevenue startup. We've got $50 million to $60 million of FC/9000 revenue real revenue – along with all the other significant portions of our business that contribute real significant income. So something's a little strange there.

Also, I think it validates our thought that the SilkWorm 12000 has not delivered what Brocade has promised. To be a player in this business, you need a director platform. They've paid a significant price to get a platform that isn't going to be in the market for another year.

Byte and Switch: You think Brocade bought Rhapsody to shore up its director strategy?

Koch: Yeah, absolutely.

Byte and Switch: But Brocade has talked about providing virtualization features in the network fabric with the Rhapsody technology. Do you have any plans on that front?Koch: Of course we've looked at our virtualization strategy. We have a product that we've been developing – it's a next-gen platform we've been developing for the last 18 months that will deliver our virtualization capability.

Byte and Switch: That's interesting. When will that be ready?

Koch: Well, I'm not at liberty to talk about that.

Byte and Switch: Oh. [Ed. note: Good luck against Brocade and Cisco, then.]

NEXT: On the Short List?Byte and Switch: With the entry of Cisco Systems Inc. [Nasdaq: CSCO] into the Fibre Channel market, Inrange is facing three strong competitors in Brocade, Cisco, and McData Corp. [Nasdaq: MCDTA]. Isn't Inrange in danger of dropping off a prospective customer's short list?

Koch: Well, the entrance of Cisco into the marketplace – I'm sure you've heard the spiel – their platform roadmap is what we've already delivered with our FC/9000 director. Their entrance into the market does a couple of things: It validates Fibre Channel and validates that there's a need to be able to support multiple protocols, which plays to our strength, unlike Brocade, which has been Fibre Channel from the beginning. I haven't seen the Cisco box. But today, we're one of only two companies that make a director. Brocade has yet to deliver a director to the market. The SilkWorm 12000 isn't hot-swappable; it has a single point of failure – it's not a director.

Clearly we have achieved a significant footprint in the director space and in the Ficon [an IBM mainframe protocol for sending data over Fibre Channel] space, where we're one of only two vendors [along with McData]. Will Cisco execute? Time will tell. We've been delivering what enterprises need for the last 30 years. Customers like the fact that our FC/9000 is 256 ports and it's scaleable, and they like the TCO [total cost of ownership] benefits we provide them. I don't think those attributes are going to go away.

Byte and Switch: You're saying McData is your closest competitor today. How do you beat them?

Koch: The strategy to beat them is to build on our diverse base. At the end of the day, we own accounts and they don't – they've always been an OEM model. We also have a differentiated product portfolio. There are all these problems associated with networking SANs. We have the ability to differentiate ourselves with things like DWDM and channel extensions to address those specific customer requirements. In that respect, we're a lot closer to the market than McData. People say, "Your problem is you're technologically ahead but you're a best-kept secret. You need to market."Byte and Switch: But McData has an advantage over Inrange because they have an edge-to-core Fibre Channel play, right?

Koch: We offer end-to-end solutions, too. [Inrange resells QLogic Corp.'s (Nasdaq: QLGC) lower-end switches.] But in our primary market, the edge is a commodity. The key is having the high-reliability director at the core, being able to interoperate with the mesh of fabric out there, and providing solid SAN management tools.

NEXT: Courting EMC and Sun

Byte and Switch: How were you approached about becoming CEO of Inrange?

Koch: I was brought into Inrange in connection with their IPO. I have an extensive background in the industry. Then I became a key member of the management team. When Sherrie [Woodring] resigned, the board looked at the various options, and they determined I was the best CEO candidate.Byte and Switch: As CEO, what were the first things you needed to get done?

Koch: The 2-Gig platform through the qualification process and into the channel was critical. In nine months, our engineering team went soup to nuts, qualified through IBM Corp. [NYSE: IBM] supporting both open systems and Ficon with the ability to intermix both 1- and 2-Gig speeds through the fabric. It's a pretty amazing achievement.

Byte and Switch: Are you talking to EMC Corp. [NYSE: EMC] about reselling the FC/9000? What have those discussions been like?

Koch: We continue to talk and work with EMC. We probably have about 100 customers that have implemented SANs where our fabric – our FC/9000 – is connected to their Symmetrix. So we work with one another on a very cooperative basis. Obviously, we would like to do more business with EMC, and we continue to work on providing them the business case to compel them to resell our product.

Byte and Switch: EMC already has two Fibre Channel switch suppliers with Brocade and McData. Is the problem that they don't want to resell and support a third product in this category?Koch: No, I don't think that's the issue with EMC. Like all OEMs, they have a lot of demands placed on their labs, but again they find the time to work with us. Their objective, I think – and this has evolved over time – is to support the industry in general and be supportive of a variety of players. Clearly, with their relationship with McData, their primary focus has been to sell essentially a turnkey SAN with their Symms and Connetrix, which is the McData product. Over time, as they migrate to more open standards and open management protocols and they see customers preferring the Inrange fabric because of what it offers to customers, they will continue to support us and will, I think, be more active in supporting us.

Byte and Switch: Sun Microsystems Inc. [Nasdaq: SUNW] recently dropped Inrange as a supplier. What has happened with that relationship? [Ed. note: Inrange says it has never had a reseller agreement directly with Sun. Rather, according to Inrange, Sun put its director on the Sun price list via Inrange's agreement with Hitachi Data Systems (HDS), which supplies Sun with its high-end Lightning storage arrays.]

Koch: The issue for Sun has been – in contrast to EMC – to limit the number of platforms and service models they were going to support. When we were late to market, as they perceived it, with 2 Gig, it made their decision [to drop Inrange's FC/9000 from its price list] that much easier. I've met with Sun and we do a lot of business with Sun. Most of it comes through their Sun Professional Services side of the business, but also they have an internal win room, a program to support something that's not on the Sun price book. We do a fair bit of volume in that win room. On the storage side, we are qualified with HDS, and Sun OEMs its high-end storage from HDS. We see this as a relatively simple qualification process, and I think there is some appeal with Sun because we have 2-Gig now and the most flexible, scaleable FC director on the market.

NEXT: Chop Heads, Boost Sales

Byte and Switch: What specific goals have you set for the company?Koch: The bottom line is, we've got to do a better job delivering return on our shareholders' investments. [Ed. note: That old chestnut again. Sigh...] The key to that from my standpoint is to get the company back to profitability. But more than that, it's to achieve a certain return that is much more in line with Inrange's historical trend of 10 to 15 percent operating income. Obviously, to do that we need to grow the top line, which has been a challenge in this environment.

Byte and Switch: In what areas have you cut costs?

Koch: As you may or may not know, we've had a number of reductions in force. Our headcount has been reduced by about 30 percent since the fourth quarter of 2001; that's the principle area of cost control. We're right around 800 [employees] now. We've also been aggressive in managing our component costs for our hardware. We have a number of techniques we use to get significant reductions in component pricing. We're doing just-in-time inventory for our component builds.

Byte and Switch: Last we heard, Inrange was using its own chip design in its 2-Gbit/s Fibre Channel products. Is that still the case? [See Inrange Nixes 2-Gig QLogic Chip.]

Koch: Yes, we did all the work internally. We began the development of 2-Gig in late December 2001, because we decided we needed to go our own way on the technology to deliver investment protection. We separated the development task from QLogic, and we went with an FPGA [field-programmable gate array], which gives you time-to-market and cost advantages. The development cycle on an ASIC [application-specific integrated circuit] is 12 to 15 months and there's increased development costs. We've used a Xilinx Inc. [Nasdaq: XLNX] FPGA.Byte and Switch: OK, how about growing the top line?

Koch: We've got a multitude of strategies. We're different from our competitors in the Fibre Channel business, Brocade and McData, because we have a much more diverse business model. We'll do $220 million to $230 million in revenue this year. Of that, $40 million is traditional break/fix services, and $30 million is consulting business. Clearly, we see significant opportunities to grow the consulting side of our business, particularly around the data-center infrastructure component of the business.

On the product side, again, we have a much more diverse business model. We have our switching product, the FC/9000; the extension products, which do channel extensions for remote processing; and SAN extensions for remote mirroring and disaster recovery solutions. We also do optical networking with DWDM products... On the extension side, we see opportunities in Fibre Channel over IP.

Byte and Switch: How fast is FCIP growing?

Koch: The growth rate has been slower than many had forecast in 2001. But it's real. I think unit volume will grow but there will be cheaper solutions to do extensions, so you may not see significant top-line growth.Byte and Switch: How does iSCSI fit into your product plans? [See iSCSI's Big Bang?]

Koch: We're not certain how quickly iSCSI will be adopted and become prevalent in SANs, but we've had a long history of adopting a variety of different protocols in our products to satisfy our customers' requirements. We support any number of transport protocols – T1, T3, OC3, whatever – and again we demonstrated it on the switching side, in that we were one of two companies that produced an Escon director. And we're now one of two companies that have produced a Ficon director. So we're very comfortable that we're able to develop a protocol-agnostic platform. So if iSCSI develops, it may take a little longer, but we'll be there.

— Todd Spangler, US Editor, Byte and Switch http://www.byteandswitch.com