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Switch Vendor Silence Is Golden

In an earnings season filled with warnings and disappointing results, the major switch vendors have yet to be heard from. No news is probably good news.

At the moment, it appears Brocade Communications Systems Inc. (Nasdaq: BRCD), Cisco Systems Inc. (Nasdaq: CSCO), and McData Corp. (Nasdaq: MCDTA) have managed to avoid the big hits other storage companies took recently. Industry sources say Cisco continues to make inroads with SAN switches, Brocade should meet expectations despite a poor quarterly showing from a major OEM, and McData has rebounded from a poor first quarter.

Let's take a closer look:

  • Cisco didn't break out storage numbers last quarter, but people familiar with the company say it continues to make solid gains with its Fibre Channel switch sales (see Another Look at Cisco, Report: Cisco SANs Grew 18%, and The Cisco Guessing Game). Kaushik Roy of Susquehanna Financial Group forecasts Ciscos sequential SAN revenue to increase by as much as 10 to 13 percent, to $50 million. While some analysts have speculated that EMC Corp. (NYSE: EMC), through which Cisco realizes more than half its storage revenue in channel sales, may be questioning Cisco's long-term commitment to storage, there are no signs that EMC is putting any alleged doubts into action.
  • Brocade was hoping for a big quarter after a flurry of product releases, but it relies more on OEM sales through Hewlett-Packard Co. (NYSE: HPQ) than do its rivals. Weak sales in the quarter by HP were blamed for hurting other OEM partners, including HBA vendor Emulex Corp. (NYSE: ELX) and tape library vendor Overland Storage Inc. (Nasdaq: OVRL). (See Emulex Hits the Deck and Overland Guides Under.) However, insiders say Brocade has done well enough with its new directors to meet expectations. Brocade’s guidance for the quarter was in the range of $147 million to $152 million in revenues (see Brocade Hits Estimates, Lays Off 110).
  • McData, which lowered its guidance twice in the three previous quarters, appears on the rebound, at least for the short term (see McData Sees Another Quarter Pounding and Ellacoya Hires Marketing VP). Roy of Susquehanna and Thomas Curlin of RBC Capital Markets recently wrote research notes predicting that McData would hit or beat its guidance this quarter. McData’s guidance for the quarter was for revenues of $92 million to $100 million and earnings per share of between minus $0.02 and break-even.

    The analysts say McData has withstood a challenge from Brocade’s new Silkworm 24000 director switch and the continued penetration of Cisco in the director market (see Brocade Launches Meteor Cisco, McData in Retail Faceoff). McData is also believed to be having success with its Eclipse 1620 SAN Router, which is based on technology it acquired from Nishan, and its SANavigator management software (see McData Sticking With iFCP, McData Sweeps Up Nishan, Sanera, and VP Details McData Software Makeover ).

    EMC, also McData's biggest resale partner, will play a big role in its long-term success. Insiders are split on how EMC will end up in terms of selling Cisco versus McData. For instance, RBC's Curlin writes that “McData’s share at EMC is poised for a rebound in the current period… due in part to mounting concerns at EMC regarding Cisco’s longer term intentions in the storage market.” But as noted, Roy says Cisco remains strong at EMC.

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