Cisco's Storage Climbs

During last night's quarterly report, Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers played hide-and-seek, as usual, about his company's storage earnings. But he offered enough information to indicate Cisco took share from its Fibre Channel switch rivals (see Cisco Reports Q3).

From a storage area networking perspective, we had another very solid quarter,” Chambers said on Cisco’s call with analysts Tuesday night.

We’re not sure how solid. Cisco never reveals exact revenue for storage, giving only ballpark figures for yearly or sequential growth (see The Cisco Guessing Game). This time around, Chambers put Cisco’s storage revenue for the quarter at over $70 million. Though, of course, it's not clear what it was in the previous quarter, Chambers said SAN orders increased in mid-single digits sequentially and more than 70 percent year-over-year, while “our top two peers in this market had year-over-year growth rates that were relatively flat or even down slightly in the most recently reported quarter.”

From recent forecasts given by the competition, it appears Cisco took more market share from leader Brocade Communications Systems Inc. (Nasdaq: BRCD) than from No. 2 McData Corp. (Nasdaq: MCDTA). (See Brocade Bungles Quarter and RIP: CNT UMD.)

Here's why: Brocade last week said it expects to report revenue in the range of $144 million to $145 million for last quarter, down from $166.6 million in the previous quarter. McData put its revenue at $98 million to $99 million for last quarter, compared to $105.8 million in the previous quarter.These figures have led a few analysts to think Cisco almost certainly picked up share, even with only modest sequential growth.

For example, Merrill Lynch & Co. Inc. analyst Shebly Seyrafi figures Cisco picked up about two percentage points of market share sequentially, while Brocade lost around the same amount and McData lost 0.2 percentage points. Seyrafi puts Brocade's market share at 46.3 percent, with McData at 31.3 percent and Cisco at 22.4 percent. That’s a far cry from a year ago, when Brocade had 52.3 percent share, McData was at 34.9, and Cisco at a mere 12.8 percent.

Seyrafi estimates Cisco’s storage revenues at $70.4 million, up 2.1 percent sequentially from $69 million and 97.5 percent annually from $35.7 million.

Seyrafi says 2004 results indicate Cisco could gain even more share this quarter. Cisco’s storage revenue grew 41 percent sequentially during the same quarter last year. “This does not bode well for Brocade or McData,” Seyrafi wrote in a note to clients.

At least one other analyst agrees. “We believe Cisco captured several points of share given the recent preannounced results from Brocade and McData,” analyst Steve Kamman of CIBC World Markets wrote in a note to clients today. He estimates Cisco’s storage revenue of $70.5 million grew 4 percent sequentially from $67.8 million and 106 percent year-over-year from $34.2 million.Cisco’s increased share is no surprise, considering it has made steady gains in SAN switch revenue since 2004. Wall Street firm Goldman Sachs & Co. estimated that Cisco picked up 9.2 percentage points of market share in 2004 (see Cisco's Elbowing McData, Report Says). According to The Yankee Group, Cisco was in a draw with McData in director revenue with 32.6 percent in the fourth quarter of 2004 (see Cisco, McData in Director Draw).

— Dave Raffo, Senior Editor, Byte and Switch