Blasts from the past:
The 10/95 press release announcing EMC's acquisition of McData, the exclusive supplier of ESCON director switches to IBM, which still has about 70% of the IBM-mainframe compatible market. From all accounts, McData started the transition from ESCON-based Director switches to Fibre Channel-based Director switches in 1998 and now controls about 99% of the market.
EMC reorganized McData in 1997 into McData Holdings, 100% owned by EMC, and McData, 81-85% owned by McData Holdings. I believe the current plan is to IPO McData then to distribute McData Holdings to EMC shareholders on a pro-rated basis 6-12 months later.
McData's TTM revenues were $143 million with a 1-2 month equipment lockdown period typical during the last 6 months due to Y2K.
Brocade, which sells fabric switches, reported TTM revenues
of $155M. With 108.5M shares outstanding, BRCD currently has a market cap of around $16 billion, or a PSR of around 103.
McData should figure to get similar multiples especially since IDC expects director switches to constitute 52% of the
overall FC Hub and Switch market in a few years.
One of McData's competitive advantage over the rest is that its FC-based director switch clearly builds on the technology and knowledge base that made its ESCON-based director switch successful for so long. EMC, IBM and HWP (which used to resell Symmetrix) control about 70% of the Enterprise Storage market so knowledge with the customer base of the Big 3 is clearly invaluable especially if you believe that the best component designs flow from the best system designs. My guess is that McData will continue to use EMC Services (3,000 out of EMC's 17,700 workforce; 1999 revenues of $733M) to support its products.
Director switches and loop switches will be the fastest-growing areas. Director switches will increase at a CAGR of 129%. They will overtake fabric switches in 2001 in terms of revenues, and by 2003, they will account for 52% of the market's revenues.
Fabric switches have become more affordable as prices declined rapidly. In contrast director switches have experienced minimal pricing declines, and because of the product's high-end, support-oriented nature, we don't expect rapid price declines in this segment. As customers focus on more high-availability installations, we expect directors will take an increasing share of revenue." Gray said.
idc.com
EMC ANNOUNCES AGREEMENT TO ACQUIRE MCDATA CORPORATION,
LEADING DATA CENTER NETWORKS SWITCH SUPPLIER STRATEGIC INVESTMENT IN COLORADO-BASED TECHNOLOGY LEADER POSITIONS EMC FOR FUTURE ROLE IN NETWORKED INFORMATION STORAGE
HOPKINTON, Mass. -- October 25, 1995 -- EMC Corporation, the world's leading independent supplier of intelligent storage and retrieval technology, today announced an agreement to acquire McDATA Corporation, a leader in data center network switching solutions, in a pooling-of-interests stock transaction valued at approximately $230 million.
The transaction includes the acquisition of more than $50 million in McDATA working capital, most of which is cash and accounts receivable. The exact number of shares of EMC common stock to be issued will be determined at the closing. Based on current market conditions, the acquisition of McDATA is expected to be accretive to EMC's earnings, adding 8-10 cents per share in 1995. Completion of this transaction is subject to several conditions, including appropriate regulatory review and approval of McDATA's shareholders. Subject to satisfaction of these conditions, the companies expect to complete the transaction during the current quarter.
EMC plans to operate McDATA as a wholly owned subsidiary. Jack McDonnell, McDATA President and CEO and one of the company's founders, will continue in his present role and report to Michael C. Ruettgers, EMC President and CEO.
Based in Broomfield, Colorado, McDATA Corporation is a privately held company specializing in high-bandwidth networking solutions for large-scale computing applications. Founded in 1982, McDATA has 150 employees and expects 1995 revenues to exceed $150 million. Its flagship product, the ESCON Director, is a high-speed fiber-optic-based network switch designed to connect computers and peripherals within today's data center. Marketed by IBM Corporation under an exclusive OEM agreement, the ESCON Director has enabled McDATA to become the leading supplier of data center network switching solutions. ESCON, or Enterprise Systems Connection Architecture, is IBM's fiber-optic-based channel architecture for high-speed data communications between mainframe computers and associated peripheral devices such as storage systems.
"This acquisition will position EMC to play an even more critical role in helping customers establish information-centric computing strategies, as the processor-centric models of the past fade away," said Ruettgers, EMC President and CEO. "McDATA's vommunications expertise will help position EMC at the center of the networked data center and open systems worlds. We now have the opportunity to extend our market leadership in intelligent storage to the network and become the premier supplier of networked storage dolutions for the entire enterprise."
"McDATA Corporation is a successful company with leading-edge technology, a strong management team, impressive technical talent, and significant financial strength," Ruettgers continued. "We believe McDATA's strategy complements EMC's. Like EMC, McDATA's most important technical expertise is in software. We expect McDATA to accelerate our growth into new markets as well as provide direct, immediate benefits to our revenue and profitability."
McDATA President and CEO McDonnell said, "This acquisition will enable EMC to capitalize on the burgeoning market for data center and open systems network switching solutions. McDATA's ESCON Director is the leading fiber-optic-based switch on the mainframe market today. EMC will benefit from McDATA's expertise in networking. Our core competencies, developed over the past 13 years, in high-bandwidth, high-speed connectivity can be leveraged to exploit future opportunities."
"Several technology trends are converging to drive the market for data center network switching solutions," McDonnell continued. "These trends include the explosion in storage capacity requirements; wide recognition of the greater need for centralized management of information; increased information sharing and access; migration to open systems computing; demand for higher-speed storage and retrieval solutions; and changes in the nature of information. Collectively, these trends point toward tremendous opportunities for EMC and McDATA to join together and capitalize on."
Ruettgers noted, "EMC has pursued a strategy in recent years of complementing its strong, internally fueled growth with selected technology acquisitions that leverage and extend our own technology and build upon our presence in important, growing markets. This agreement is consistent with our strategy."
EMC Corporation, based in Hopkinton, Mass., is a world leader in enterprise-wide information storage and retrieval technology, designing systems for mainframe, midrange and open systems environments. The company has offices worldwide and trades on the New York Stock Exchange under the symbol EMC.
ESCON and Enterprise Systems Connection Architecture are
trademarks of IBM Corporation.
sec.gov
From the 3/97 10K:
In the late 1980's, open systems computing, frequently referred to as client server computing, was emerging as a new, flexible and distributed model for development of new business applications. This contrasted with mainframe
computing, characterized at that time by proprietary operating systems and large scale, centralized high performance computing platforms. The flexibility and distributed nature of open systems became the solution for customer departments or divisions that required quick turn-around of application changes to meet new market demands. Many customers considered open systems to be the alternative to the mainframe approach they had been dependent upon for years. A shift in focus toward development of new applications in the open systems market began increasing the need for more robust storage solutions.
Historically, the use of both mainframe and open systems as key business application development platforms were looked at from a Central Processing Unit ("CPU")-centric approach, where the computing platform was placed at the center of a customer's Information Systems ("IS") architecture with all other required elements placed on the periphery. As the new applications became more important to companies'businesses, the volume of information increased significantly, as did the importance to such companies of managing such information to gain competitive advantage. EMC believes that companies are re-evaluating the way they manage information and have determined that a new information- centric model is required to satisfy the protection, management and sharing of mission critical information across the enterprise.
This information-centric computing model defines what EMC believes is a significant growth opportunity, the Enterprise Storage market. An Enterprise Storage system stores and retrieves data from all major computing platforms, including mainframe and open systems environments. It acts as a shared central repository for information, providing common management, protection and
information sharing capabilities. The product attributes provided by Enterprise Storage are expected to meet the demands of emerging enterprise application developments, such as Data Warehousing and Data Mining, Internet/ Intranets, Year 2000 Compliance and European Currency Conversion. These developments are all considered to be major storage growth drivers for the IT industry.
|
