QLogic Supplying HP 8 Gigabit Virtual Connect: The Good, the Bad and the Ugly

QLogic announced on September 16th that it's a manufacturing and marketing partner for the new HP Virtual Connect 8 gigabit Fibre Channel module - a relatively new class of product that has become very popular because it solves a nagging problem for data center managers.

Data center managers routinely deal with Brocade Fibre Channel switches not working seamlessly with their Cisco switches or their QLogic switches. These multi-vendor interoperability issues make overall SAN management a hassle, or forces the data center manager to buy only one brand.  Virtual Connect blade server modules have become volume products because they eliminate multi-vendor switch interoperability issues by making the ports look like Fibre Channel HBAs.  Brocade, Cisco and QLogic switches are designed to play nicely with any HBA so they all connect perfectly to these pseudo-HBAs.  Interoperability problem solved.

The Good

QLogic enjoys the position as exclusive provider to HP for 4 gigabit Virtual Connect. This should make it easy for QLogic to slide the next generation 8 gigabit product smoothly into the HP sales pipeline. And the Fibre Channel Virtual Connect opportunity is substantial. IT Brand Pulse estimates this single product has a revenue potential of about $25 million per year. That's about 25% of QLogic switch revenue based on last quarter's total switch revenue of $25 million reported on the QLogic earnings call.

The Bad

The bad news is Brocade got the initial HP Virtual Connect 8 gigabit Fibre Channel design win almost a year ago and has been shipping 24-port modules since the end of April.  Lucky for QLogic the majority of storage and SAN volume is still 4 gigabit so they have a chance to compete for the greater 8 gigabit volume that eventually will displace 4 gigabit completely. However they will compete for this business with a 20-port module and a handful of field people surrounded by a massive installed base of Brocade switches and a huge Brocade field sales force. Advantage Brocade.

The Ugly

To net it out, Brocade has 100% market share today for 8 gigabit Virtual Connect modules. IT Brand Pulse estimates that by the time shipments of 8 gigabit Virtual Connect modules reach full volume, the market share split will be 75/25 Brocade.  If this scenario materializes, QLogic revenue from Virtual Connect modules would come-in at a little over $6 million.  If QLogic revenue from 4 gigabit Virtual Connect is near $25 million per year, they've got a $19 million hole to fill.

Related Link: HP Virtual Connect 8Gb 24-Port Fibre Channel Module (from Brocade) http://h18004.www1.hp.com/products/blades/components/fibrechannel/vc8/index.html