The Top Ten Byte and Switch SAN Stories

Heres a holiday gift from Byte and Switch: a Top Ten list of the hottest stories and trends that have taken shape since we launched our site in June, 2001.

One hundred thousand readers now visit this site each month. The editors of Byte and Switch would like to thank all of you for your patronage (and your eyeballs). We realize that you have a choice of storage networking sites – and the fact that so many have chosen us surely can't mean that other ones totally suck or anything.

Byte and Switch wishes each of you the very best for 2002. In the words of the gimpy, yet indomitable tiny tim: "God Bless Us, Every One!"

No. 10: Compaq/HP Merger

In September, Compaq Computer Corp. (NYSE: CPQ) and Hewlett-Packard Co. (NYSE: HWP) announced plans to merge into what would be an $87 billion company."Would be" is the operative term, here. The deal hasn't gone through yet, and may not, depending on what the regulators have to say about it.

The plan was met with a cold reception on Wall Street and, well... everywhere else, actually. Even Walter Hewlett, the old, contrarian HP director, who hasn’t said a word for years, piped up, Daddy Warbucks-style, to say he thinks the plan bites large (or, at least, words to that effect).

As the biggest deal of the year not to actually happen, the Compaq/HP merger scrapes onto our list at No. 10.

No. 9: New TechnologiesTwo new (sort of) technologies made big debuts (ta-daaaaaa!) in 2001.

InfiniBand was one. The technology was originally designed as a replacement for the PCI (peripheral component interconnection) bus in servers, but is now being touted as a clustering technology for servers – and could turn out to have wider applications as an alternative to Fibre Channel in storage nets.

Whatever. We're just disappointed that the industry consortium pushing the technology is called the InfiniBand Trade Association, not the "Infiniband of Brothers."

And, of course, no Top Ten list worth its salt would neglect to mention another new technology: Virtualization, which was the tech buzzword of 2001 by a country mile.What it is: management technology that maps incompatible physical storage devices into a common pool of capacity, supposedly easing the burden and cost of managing heterogeneous storage.

Hewlett-Packard forked out $350 million for StorageApps this year, which put the technology on the map. And about $300 million has been invested in startups working on virtualization solutions.

No. 8: SSPs RIP

They came. They saw. They went away again.2001 saw the total disintegration of the storage service provider (SSP) market, after a lot of PWSHKB (people who should have known better) wrote some of the world's daftest business plans and actually managed to get some of them funded. Biggest offender, without any doubt: Sanrise Inc.

No. 7: Romulan Cloaking Devices

In a strange-but-true twist, numerous storage networking startups were afflicted by a curious condition during the second half of the year. The symptoms were twofold: disappearing customers and invisible products.

Both 3PARdata Inc. and Zambeel Inc. still have shields of death surrounding their products, and TrueSAN Networks Inc. – along with many, many others – is suffering from a nasty case of invisible customer.Probably the worst case of now-you-see-it-now-you-dont-itis is Cereva Networks Inc., whose product is still translucent at best, and whose trial customer disappeared – poof! – a few weeks after being announced.

No. 6: Law Suits

The storage networking industry has a new motto, apparently: “When the going gets tough, sue someone.”

In the finest tradition of a best legal defense being a good offense, many storage networking companies went lawsuit crazy this year. EMC Corp. (NYSE: EMC) led the field...

But Storage Computer Corp. (AMEX: SOS) also joined in the fun – not that it seemed to have a hugely positive affect on its fortunes:

A love of lawyering extended down into the ranks of the startups, as well:

No. 5: LayoffsWhen it comes to layoffs, storage networking has not been hit as hard as the optical networking industry, but it was far from immune from the downsizing disease. And for those who did get pinked, the experience was every bit as unpleasant as it was for their optical counterparts.

No. 4: Blustering Brocade

Brocade Communications Systems Inc.’s (Nasdaq: BRCD) 2001 efforts to continue expanding its dominance of high-end data centers proved to be a bigger test for the company than it had bargained for.

Its 2-Gbit/s Silkworm 12000 switch has gotten off to a bumpy start:

Projected earnings for Q1 2002 also prompted downgrades from some analysts:

Making matters worse, investors hated the company's recent announcement that it would raise $500 million by selling a convertible bond to investors. Brocade officials said the money would be used for working capital and other stuff they couldn’t possibly talk about. Some analysts think an acquisition is in the cards. Either that, they say, or Brocade is banking the money in preparation for even tougher times ahead.

There are also signs that Brocade insiders are less than bullish on the future of the company's stock. According to SEC filings this month, Brocade CEO Greg Reyes, VP of strategy Paul Bonderson, and the new CFO, Antonio Canova, have each filed to sell a considerable number of shares in the company.

Through it all, Brocade’s "Who needs a free press anyway?" attitude to PR and marketing has resulted in a highly entertaining and, at times, hilarious year for everyone who covers this market.

No. 3: IP Storage

As industry trends go, it doesn't get much bigger than this. 2001 saw the arrival of a hoard of startups hawking IP storage networking products of one hue or another. Most importantly, Cisco Systems Inc. (Nasdaq: CSCO) entered the fray, considerably shortening the odds that IP infrastructure will become a credible storage infrastructure.

No. 2: Unmoored EMC

EMC’s epic fall from grace began midyear with the news that its profits had fallen 75 percent from a year ago.

Initially, the storage giant blamed the economic downturn. But analysts insisted that, although the weak economy had contributed to its abysmal earnings, the overriding problem for EMC was competitive pressure and the diminishing hardware sales that resulted from it.

IBM Corp. (NYSE: IBM) and Hitachi Ltd. (NYSE: HIT; Paris: PHA) were already chiselling away at EMC’s armor. This forced EMC to cut pricing to as low as 4 cents per megabyte on some deals (compared to sales at around 10 cents per megabyte in the preceding quarter).Then the October quarter’s results came out. The situation was so bad that EMC announced an increase in planned job cuts to 4,000, up from the 2,400 announced in September (itself in addition to 1,600 cuts earlier in the year). The company also slashed marketing by a third from its peak levels and cut manufacturing significantly.

In an attempt to face the music, EMC realized the only way to differentiate itself was to write better software that would not only improve the performance of its hardware but also work across rival vendors' storage systems. For EMC to even consider its competition in this way was unprecedented.

The final stroke for EMC was when former senior EMC executives told Byte and Switch that a compensation scheme involving Moshe Yanai, the inventor of the company’s flagship technology, could be a key factor in its declining sales. Just two weeks after this story broke, EMC sidelined Yanai who had been VP and head of engineering for over a decade, to the honorable position of EMC Fellow.

It wasn’t all bad news. EMC saw a little upside in October, when the company announced it would resell its Clarion products through Dell Computer Corp.’s (Nasdaq:DELL) channel. Analysts liked the sound of the deal as it promises a faster channel to market for EMC’s products.

Still, as years go, the Dell deal represents a very thin silver lining in an absolutely HUGE cloud.

No. 1: Startup SupernovaThe brightest and most interesting star in the stuffy old storage market in 2001 came in the guise of almost a hundred new startups in this sector – many of them backed by top-tier venture capital firms and Wall Street players. Of course, along with all the real innovators came the inevitable bandwagon-jumpers (yee-haw!) and VCs looking to make a fast buck. The shakeout will be brutal – many analysts think it’s already started.

Here’s the Byte and Switch list of the Top Ten private companies that we think will make it to the finish line either via an IPO or acquisition (hopefully in 2002!):

The New Top Ten

— Jo Maitland, Senior Editor, and Stephen Saunders, Founding Editor, Byte and Switch
http://www.byteandswitch.com