SAN Switch Year-End Summary

As the year draws to a close, the SAN switch market is looking strong, but at least one vendor may wish Santa's elves would deliver better year-end figures, and 2005 could yield some surprises.

By most accounts, the leading light in the SAN switch market remains Brocade Communications Systems Inc. (Nasdaq: BRCD). With over $600 million in revenues anticipated for 2004, the vendor continues to build on its strong OEM relationships, particularly with Hewlett-Packard Co. (NYSE: HPQ). (See Brocade & HP: Blade Brothers, HDS Resells Brocade Switch, and IBM Offers 4-Gig SAN Switch.) Just this week, Brocade announced that its SilkWorm 3250 will be sold with new HP SAN starter kits (see Brocade to Ship With HP Starter Kits).

According to figures from Goldman Sachs & Co., Brocade's estimated revenues for 2004 will be about $612 million, or roughly 48 percent of the $1.2 billion SAN switch market. Comparatively, McData Corp. (Nasdaq: MCDTA) owns roughly 32 percent of the market as the year closes, Cisco Systems Inc. (Nasdaq: CSCO) owns about 15 percent, and QLogic Corp. (Nasdaq: QLGC) holds about 5 percent.

Table 1: Total Storage Revenues ($M)

Brocade is not the fastest-growing player in the SAN sector, by Goldman's figures; that honor goes to Cisco, which boosted its storage revenues more than 130 percent in 2004. QLogic grew 15 percent, and Brocade grew 12 percent. McData's revenues declined 5 percent.The figures are no surprise to switch-watchers. For months, Brocade's been holding its own, Cisco's been growing, and McData has struggled to maintain its footing (see Brocade Tops Switch Sales, McData Merely Mediocre, and Cisco Storage Slips). The question is, what will happen in 2005?

At least one analyst predicts that Brocade will maintain its market lead, but face challenges in the OEM arena. Analyst Thomas Curlin of RBC Capital Markets writes in a recent note: "Brocade, although most appropriately aligning their business model with the current environment, finds themselves challenged by a number of dual-source scenarios at existing OEMs."

It was a move by EMC Corp. (NYSE: EMC) to diversify its OEMs that shook McData so much this year, Curlin says. Brocade could face the same kind of revenue loss, should HP, its leading OEM, decide to pick a range of partners.

Cisco's growth is also a concern, though Goldman analysts think it's so far been more at McData's expense than Brocade's. There are also whispers that Cisco might be looking to expand its storage line through acquisitions, which could be an interesting twist (see Cisco Eyes SAN Startups).

Meanwhile, smaller players are upping their efforts. Computer Network Technology Corp. (CNT) (Nasdaq: CMNT) continues to develop its director line and is continually the subject of acquisition rumors. A couple of startups are also advancing: Maranti Networks Inc. got $26 million this year, while MaXXan Systems Inc. pocketed $29 million (see Storage Startups Top $500M and Funding Cheer for Two).Whatever the new year brings, it's bound to be interesting.

Mary Jander, Site Editor, Byte and Switch