McData Boss Yawns at Cisco

McData Corp. (Nasdaq: MCDTA) CEO John Kelley says he doesnt see why industry insiders fuss so much over the latest SAN switch revenues from Cisco Systems Inc. (Nasdaq: CSCO). But he concedes that Cisco's got other vendors preoccupied, McData included.

“I don’t want to minimize their growth in the last quarter, but it was a ho-hummer for a company the size of Cisco,” Kelley said in an interview with Byte and Switch today.

Kelley admits Cisco has had a major impact on McData and rival Brocade Communications Systems Inc. (Nasdaq: BRCD) in the ultra-competitive SAN switch market. But that market's still growing, he says: Brocade reported $145 million and McData $114 million in revenue last quarter, both up sequentially and year-over-year (see Brocade Battles Back and McData Struggles to Keep Pace).

Cisco reported quarterly storage numbers for the first time when it claimed $40 million in revenue and approximately 540 customers last month (see Cisco Storage Growing Up). That was a big step up from the previous quarter, when CEO John Chambers said manufacturing and supply problems with its Andiamo switches prevented the company from meeting sales targets (see Cisco Still a Kid in Storage). Yet storage remains galaxies away from hitting the $1 billion target Chambers set for it last December (see Storage: A Cisco Billion Dollar Play).

Even if Cisco’s sales last quarter were “a ho-hummer” for its size, it's clearly starting to have success compared to past quarters. Cisco's report also confirms the greatest worry that McData and Brocade had when Cisco first got into the market -- that three giants are one too many in the industry. Even Kelley admits three’s a crowd.“It’s going to be a tough, slug-it-out environment,” he says, “As aggressive as all three of us are, there’s probably not enough to execute what we all want to do.”

The three-way battle has already taken its toll on Brocade and McData. Despite their recent earnings reports, each has had significant layoffs in the past year and seen pricing pressures cut into its profits (see Alltel Q1 Revs, Profits Rise, McData McDownsized, and EMC Playing Hardball With McData?).

Analysts have speculated that Cisco’s sales came at McData’s expense because both target the enterprise, while Brocade dominates the midrange and is aggressively pursuing the entry-level market (see Brocade & McData's Paths Diverge).

Despite playing down Cisco's sales growth, Kelley appears obsessed with its market presence. He maintains that Cisco is McData’s main rival. Even though Brocade is the overall market share leader, Kelley sees Cisco wherever he turns.

“A company the size and scope of Cisco, you have to wake up each day and know they’re there,” Kelley says. “Everybody’s worried about Cisco: networking companies, security companies, wireless companies. I’m on the board of Polycom, a communications company. They say, ‘Our problem’s Cisco.’ I say, ‘Wait, Cisco is my problem.’ They’re a problem for a lot of people."Kelley takes heart from what he sees as a competitive market where nothing's set in stone. “We have a competing product set and roadmaps to match anything they have. Sales reps from Cisco don’t just walk in and say ‘We’re Cisco’ and get the sale.”

— Dave Raffo, Senior Editor, Byte and Switch