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IBM Slashes Cisco MDS Pricing

Big Blue cuts Cisco switches by up to 31% - a sign they aren't exactly flying off the shelves UPDATED 6PM

IBM Corp. (NYSE: IBM) has lowered its list prices for the Cisco Systems Inc. (Nasdaq: CSCO) MDS 9000 SAN switches by as much as 31 percent -- a clear indication, some analysts say, that Cisco's initial progress in the market has been slower than it expected.

The move is an about-face from IBM's original plan to price the Cisco gear higher than switches from Brocade Communications Systems Inc. (Nasdaq: BRCD), CNT (Nasdaq: CMNT), and McData Corp. (Nasdaq: MCDTA).

Tarek Makansi, director of storage products for IBM, told Byte and Switch earlier this year that Cisco's switches would be "competitively priced, given their value." We interpreted this to mean (correctly, it turned out) that the switches would be priced higher per port than competing products (see IBM Tells Cisco: 'Let's Go!' and Cisco Gets Set).

IBM apparently assumed that certain proprietary features of the MDS switches -- such as Virtual SANs (VSANs), which allow multiple logical SAN fabrics to run over the same physical infrastructure -- as well as the "Cisco brand name" warranted a healthy markup over existing market prices (see Cisco's VSANs: Hype or Innovation?).

But now Big Blue has changed its tune. "After Cisco launched the switches, IBM went back to them and said, 'A premium-pricing strategy isn't going to work with customers,' " says IBM spokeswoman Whitney Basaman. "As a result, IBM is reducing the pricing of those switches to make them price-competitive in the market." She adds that IBM will announce more pricing details in July.

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