Infonetics Slashes FC Forecast

The Fibre Channel SAN switch market is indeed a topsy-turvy place.

An Infonetics Research Inc. report out this week not only halves the research firm's two-year revenue forecast for the space, but also shows Brocade Communications Systems Inc. (Nasdaq: BRCD), McData Corp. (Nasdaq: MCDTA), and Cisco Systems Inc. (Nasdaq: CSCO) competing aggressively for market share (see Infonetics: Brocade Still Tops in FC).

The report estimates that revenue in this space topped $522 million in the first half of 2003 and will reach $1.1 billion by the end of this year. But while that's a 22 percent jump over the first half of 2002, according to Infonetics, the firm had been expecting revenues in the first half of this year to reach $757.4 million (see Infonetics: 2-Gig FC 90% of Market).

Perhaps even more worrying for the Fibre Channel switch market is that Infonetics now expects revenues in the space to grow to $1.6 billion by 2005. While that may sound like impressive growth in a continued depressed market, it's a far cry from the firms expectations only six months ago. In February, Infonetics forecast Fibre Channel SAN switch revenues would reach $3.3 billion by the end of 2005.

Infonetics analyst Neil Osipuk, the author of the report, says he drastically revised his outlook after end-user research revealed that large enterprises were anticipating far fewer large-scale SAN deployments over the next couple of years than earlier studies indicated. “The large enterprises want to get more out of their investments in the SANs they’ve already deployed,” he says. “The main growth will be in the midtier.” (See Report: Midmarket Moving to SANs.)This shift of focus from the high-end to the midtier is also rearranging the power structure in the 2G Fibre Channel SAN switch market, according to the report. While Brocade is still clinging to the market leader position in this space, McData appears to be rapidly gaining share. Brocade "did have the early lead in the 2G FC market… but its lead is eroding," Osipuk says. "McData is really catching up and making progress there."

Figure 1: Source: Infonetics

The Infonetics report, which is based on demand-side research, financial documents, and vendor testimony, estimates that Brocade holds 40 percent of the market share by revenue and 49 percent of the market share by port count, while McData holds, respectively, 33 and 25 percent. At the end of 2001, Brocade held 83 percent of the 2-Gbit/s port market share and McData had none, according to the report.

Spicing up the musical-chair scenario even more is Cisco’s entry into the market. While the networking giant’s presence in the SAN switch space still isn’t large enough to break out, Osipuk says he expects the company to make significant progress over the next six months.

“In the second half of 2003, people will be eagerly watching what Cisco’s progress is like,” he says. “Certainly they’ve been very aggressive from what we’ve seen. They’ll start to show up as a significant player in the market over the next six months or so.”— Eugénie Larson, Senior Editor, Byte and Switch