McData's Qualification Quagmire

McData Corp. (Nasdaq: MCDTA) has a lot of reasons to want to see EMC Corp. (NYSE: EMC) qualify its new i10K director, including the need to clear up confusion about the delay.

The lack of EMC qualification of the i10K raises two questions. First, is there something wrong with the director? People familiar with the situation say all technical problems have been minor. And that raises the second question: If there are no compelling reasons to withhold qualification, is there a problem between EMC and McData?

Hitachi Data Systems (HDS) and IBM Corp. (NYSE: IBM) qualified the director soon after it launched in January, but EMC has yet to officially give its blessing to McDatas new flagship product. McData CEO John Kelley says there are “small obstacles” left to overcome, but he expects EMC to qualify the director by next month.

McData executives say EMC is shipping the i10K, although it hasn’t yet qualified it or added it to its OEM list. Analyst Tom Curlin of RBC Capital Markets wrote in a note to clients this week that EMC stopped shipping the i10K at the end of July, although the problems didn’t seem too serious to customers.

“It appears the issues were related to hardware failures in the field due to manufacturing errors,” Curlin wrote. “However, contacts report unsuccessful attempts by EMC to decommission already shipped systems, as customers were adequately satisfied with performance. Furthermore, we believe the issues have been resolved.”Several sources with knowledge of the situation say the problem started when McData informed EMC that the director didn’t work properly when the temperature rose to above 150 degrees in the data center. That doesn’t sound like that big of a problem. How often does the temperature get that high? Still, EMC held off on qualification. The problem was quickly fixed, and EMC begin selling it to customers that wanted it before completing qualification.

Then other small problems arose with early EMC customers. One storage analyst familiar with the situation says there were “installation issues. It does not work the same way as the other McData directors because it is a different architecture. Those problems have been fixed with a bit more training. From what I heard, all of the problems have been fixed and EMC is selling it again.”

A query to EMC didn’t shed much light on the situation. “EMC is currently qualifying the McData i10k director through its eLab, which conducts the most comprehensive testing in the storage industry,” an EMC spokesperson wrote in an emailed statement. “Once it is qualified, it will be added to the EMC support matrix and offered as part of the EMC Connectrix family of switches and directors."

If the issues were indeed minor -- Hitachi and IBM apparently thought so -- EMC should have qualified it by now, right?

“If EMC is indeed shipping it, I don't understand why they haven't qualified it so far,” says one skeptical financial analyst who asked to remain anonymous.The situation has some analysts wondering about the relationship between the companies. EMC owned McData from 1995-2001 and retained a cozy relationship that seemed to cool off a bit after Cisco Systems Inc. (Nasdaq: CSCO) entered the Fibre Channel switch market. Cisco and EMC forged a NAS partnership in January, going beyond their switch OEM relationship (see Cisco & EMC Close NAS Deal).

Kelley insists everything is fine with EMC. When asked during McData’s earnings call Tuesday if he thought new McData COO Todd Oseth could help push through i10K qualifications because he came from EMC, Kelley cracked, “That was the only reason we hired Todd. Actually, I think our relationship with EMC is the best it’s been since I’ve been here, and they owned us for five years." (See McData Names EMC's Oseth COO.)

Regardless of the relationship, McData’s recent acquisition of CNT makes it less dependent on EMC for revenue. EMC made up 47 percent of McData’s revenues in the first quarter of this year before the CNT acquisition, with IBM contributing 25 percent and other storage vendors and VARs contributing 28 percent. After starting to sell CNT products and services in the second quarter, McData reported that EMC made up 28 percent of its revenue with IBM staying at 25 percent and the others increasing to 47 percent. The change came because almost no CNT revenue came from EMC before the sale.

— Dave Raffo, Senior Editor, Byte and Switch