Ergo, it must continue to dominate the Fibre Channel market if it is to
maintain its revenues (and share price) and not go the way of companies like
EMC, Foundry Networks Inc. (Nasdaq: FDRY), or Heaven forfend! Lucent Technologies Inc. (NYSE: LU). The problem is that Brocade is already losing
market share. And given the number of companies that are gunning for a piece
of its pie, things are set to get worse.
Of course, Brocade could just tell people that this doesnt matter because
the Fibre Channel market is growing faster than it can lose it. But this
sort of argument is unlikely to impress Wall Street.
A better defense would be a strong technology offense, by which Brocade
aggressively develops new Fibre Channel products, brings them to market
first, proves that they are best in breed, and then forces the competition
out of business by using its strong cash position to undercut their prices
(à la Cisco).So is Brocade doing this? Not exactly. Its foray into 2-Gbit/s Fibre Channel
switches is a case in point (see Brocade Unveils Fabric Switch).
Consider the story so far:
To its credit, Brocade has been investing heavily in research and
development. In fact, over the past five quarters, Brocade's R&D-to-sales
spending ratio (a good barometer of a how aggressively a company is
developing new products) has averaged 19 percent higher than that of other
market-leading companies like Cisco (17.5%), QLogic (17.3%), EMC (11.9%), or
Network Appliance Inc. (Nasdaq: NTAP) (12.6%).
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