Cisco Call Puts SANs in Storage

The latest word on Cisco Systems Inc. (Nasdaq: CSCO) SAN switches during the companys quarterly earnings report was... no word at all (see Cisco Delivers, Sees 5% Growth in Q4).

Storage barely came up during Cisco’s earnings call on Tuesday night after the market closed. No numbers were given, nor were future expectations discussed. Granted, storage is a small part of Cisco’s overall business, but in the last few quarters CEO John Chambers gave indications of Cisco’s SAN switch progress.

In February, Cisco broke out its storage numbers for the first time when it reported $40 million in revenues ($30 million in that quarter and a $10 million backlog from the previous quarter) and approximately 540 customers (see Cisco Storage Growing Up). In the previous quarter, Chambers admitted Fibre Channel switch sales failed to meet targets due to manufacturing and supply issues, as well as a lengthened sales cycle (see Cisco Still a Kid in Storage).

On Tuesday, there was nothing about storage sales. Cisco lumps storage with five other segments in Advanced Technologies. Overall, Advanced Technologies grew 13 percent sequentially and made up 16 percent of Cisco’s revenues for the quarter. CEO John Chambers said three advanced technologies -- security, wireless, and IP telephony -- reported significant growth.

It was a quiet day on the SAN switch front for Cisco, while its main competitors, Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA),announced OEM deals with major storage vendors (see IBM, Brocade Tie SAN Knot and EMC, McData Make a Connectrix).The earnings call was a big change from February, when Chambers congratulated the storage team and said the numbers represented “industry acceptance of our storage strategy.”

“With Cisco you never know,” says financial analyst Steve Berg of Punk Ziegel & Co.

“You can guess it may have been bad news but you can’t be sure. There’s precedent for them not talking about it. On the other hand, if it were good news you would expect them to talk about it.”

Cisco spokesman John Noh says there was no significance in Chambers practically ignoring storage during the 90-minute call. “He has a lot of technologies to cover, and the call was limited,” Noh says.

Few hints on its SAN switch sales have come from outside the company either. In a note today, Raj Srikanth of Deutsche Bank Securitiessaid SAN sales were soft. Another financial analyst, Kaushik Roy of Susquehanna Financial Group, says he is hearing something else.

“I’m not sure why they didn’t give storage numbers, but my own checks indicate Cisco is making good progress,” Roy wrote in an email.Most people, including McData CEO John Kelley, consider McData as Cisco’s prime target because Cisco has focused more on the director switch category where McData is the leader (see McData Boss Yawns at Cisco and Brocade & McData's Paths Diverge). Brocade remains the leader in the low-end and midrange markets. However, Roy says he believes Cisco is selling more than directors now.

“In the past Cisco was gaining traction in the high-end directors only,” Roy wrote in his email. “But my checks indicate that for the first time Cisco is selling [lower end] switches now -- not good for Brocade or McData. EMC is also selling a lot more Cisco now, probably at the expense of McData.”

Brocade and McData announce their earnings next week. McData slashed its revenue guidance last month to between $94 million and $104 million from its previous estimate of between $108 million and $115 million (see McData Slashes Guidance – Again).

— Dave Raffo, Senior Editor, Byte and Switch