Fibre Channel: HBA Hog Heaven

News this week from Emulex Corp. (NYSE: ELX) underscores the firm attachment (no pun intended) that host bus adapter (HBA) vendors have for the Fibre Channel market.

In recent announcements, Emulex has made it clear that it has no intention of giving up its lucrative market in SAN connectivity, despite claims for the emergence of iSCSI and other methods that threaten to displace Fibre Channel. Here's a news recap:

• Q2 Earnings: Emulex posted record revenues of $94.4 million on January 27 (see Emulex Reports Record Revenue). That figure is up 12 percent sequentially and 23 percent year over year -- and nearly all of it came from Fibre Channel products. That means HBAs, but switch components from Emulex's acquisition of Vixel last year are selling well, too (see 2003 Top Ten: Mergers & Acquisitions). These embedded switches use Fibre Channel technology to streamline links between disk drives and intelligent controllers inside OEM'd storage devices. In a note to clients today, Richard Kugele of Needham & Co. estimates Vixel's contribution to be $4 million to $4.5 million this quarter, and the firm projects strong growth in its products next quarter.
• HBAs for SMBs: Emulex unveiled the LightPulse LP101 on January 27, first in a series of FC HBAs geared to the small and medium-sized business (SMB) market (see Emulex Intros FC SAN HBAs). SMBs are considered potential hot prospects for a range of storage products, since many are reaching data saturation on existing wares. But where folk like Microsoft Corp. (Nasdaq: MSFT) see a big chance in the SMB space for IP technologies (see Charles Stevens, Corporate VP, Enterprise Storage Division, Microsoft Corp.), Emulex is betting on Fibre Channel. More on that in a minute.
• 4-Gig Embedded Switch: Emulex announced January 26 that it is providing OEMs like Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702), Seagate Technology Inc. (NYSE: STX), and Xyratex with a new embedded switch, named the InSpeed SOC 422, that supports 4 Gbit/s on 22 ports of connectivity, using Fibre Channel technology. While not specifically geared to the HBA market, the news is evidence of Emulex's faith in all things Fibre Channel. Thanks to an arrangement with Marvell Technology Group Ltd. (Nasdaq: MRVL) that includes new Asian fabrication, Emulex says it's offering OEMs this part at lower cost than the predecessor 2-Gbit/s embedded switch, the SOC 320. "We can offer OEMs up to 50 percent solutions savings," claims Brian Reed, VP of business development.

Hang on: Isn't the Fibre Channel market meant to be slowing down, particularly at the low end of the market, where SMBs resist spending the money or brainwaves on FC SANs? No, says Emulex. Like chief competitor QLogic Corp. (Nasdaq: QLGC), with which it shares dominance in the HBA space, Emulex sees SMBs as potential Fibre Channel buyers.

Emulex spokespeople say that, even though small companies aren't buying Fibre Channel today, they're likely to do so if they see easy-to-install kits from OEMs, ones that include HBAs that are cheap and easy to use. This mimics the approach to lower-end "SAN starter kits" Qlogic announced with OEM Hewlett-Packard Co. (NYSE: HPQ) in November (see QLogic Bundles Up With HP).

Qlogic also touted Fibre Channel in its latest earnings report (see OEM Rains on QLogic's Quarter). Unlike Emulex, however, Qlogic said that 78 percent of its total quarterly revenue -- not all of it -- came from Fibre Channel products.