SAN Switch Sales Swell in 02

Here's some refreshing news from the network equipment market: Worldwide sales of SAN switches grew 15 percent year-over-year to $954 million in 2002 -- and will hit $1.1 billion this year, according to a report published today by the Dell'Oro Group (see FC Switch Sales Up 15% in '02).

"This positive growth can't be said for many segments of the networking market," says Paul Baranello, senior analyst at Dell'Oro Group and author of the report.

The major driver of growth last year appears to be the transition from 1-Gbit/s to 2-Gbit/s Fibre Channel switches. The study reveals that 2-Gbit/s FC switches accounted for more than 95 percent of fourth-quarter 2002 sales, versus less than 20 percent in the same quarter in 2001.

In addition, sales of director-class Fibre Channel products were up 48 percent year-over-year, to $418 million, pushing up the numbers for 2002, according to the report. FC fabric switches accounted for $536 million of total worldwide sales, a decline of 2 percent from the previous year.

New director switches on the market last year included Brocade Communications Systems Inc.'s (Nasdaq: BRCD) debut in this space with the SilkWorm 12000, McData Corp.'s (Nasdaq: MCDTA) Intrepid 6140, and Inrange Technologies Corp. (Nasdaq: INRG) 256-port FC/9000. "These are more appealing to large businesses looking to consolidate their storage environments," notes Baranello (see Inrange Ships 256-Port Director, Inrange Counts to 256, McData Hits 140 Ports, and Brocade Cashes 12000 Checks).The market ended 2002 on a high note, as quarterly sales increased 5 percent quarter-over-quarter to a record $263 million in the fourth quarter, according to Dell'Oro. This momentum is expected to continue through 2003 with more growth at the low- to mid-end of the market. "It will be interesting to see how Brocade's 3900 [32-port switch] ramps in 2003," says Barnello (see Brocade Preps 32-Port Push).

Brocade held on to its lead, with 58 percent market share, and increased revenue by 19 percent, to $551 million, compared with the previous year, according to the report. It's worth noting Vixel Corp. (Nasdaq: VIXL) and Gadzoox Networks Inc. (OTC: ZOOX) together totaled less than 3 percent of the total market (see Broadcom Gulps Gadzoox).

Table 1: SAN Switch Leaders

One major consideration the Dell'Oro report does not take into account is how Cisco Systems Inc.'s (Nasdaq: CSCO) entrance into the market will affect the status quo. Dell'Oro says it concentrates on the past and the present rather than speculating on the future. Baranello declined to make any comments on Cisco.

To us, that's like ignoring the elephant in the room -- particularly when Cisco already appears to be destabilizing the incumbent players. Wall Street analysts bombarded Brocade on its recent earnings call with questions about how it plans to defend itself against the networking giant (see Brocade Puts Up Q1 Loss).Cisco announced this month that Hitachi Data Systems (HDS) has qualified its MDS 9000 series and IBM Corp. (NYSE: IBM) will start shipping it in March (see Cisco Gets Set