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McData McDownsized: Page 2 of 3

Since McData last gave guidance in December, its market share has been threatened by increased competition from Cisco in the high-end director switch class. In the midrange, a switch from Brocade appears to be looming (see Brocade & McData's Paths Diverge).

“Cisco has picked up the battle with McData,” Roy says. “Cisco will still sell in the midrange, but its focus is on McData in the director class. McData was doing well with the midrange Sphereon 4500, but Brocade will come out with the Dazzler product and price it very low. McData has felt those two changes.”

McData reported a quarterly loss of $50 million last December due mainly to money spent on Nishan and Sanera and pricing pressures blamed on Cisco’s entry into the market (see McData Maudlin Over Price Pressure). It has since gone through personnel changes. CEO John Kelley took on the chairman’s position after co-founder Jack McDonnell retired, and Gary Gysin moved up from head of its software division to chief sales executive (see McData Names Kelley as Chairman and McData Promotes Gysin).

A research note written by analyst Brenden Smith of Goldman Sachs & Co. today predicts more changes.

“Beyond the pending facilities consolidation in Northern California, with CEO John Kelley now able to operate with a free hand, the odds of more meaningful change versus the status quote have gone up,” Smith writes.