Kumar is just plain wrong on this one.
....while the fiber channel business will degrade slowly, we believe valuations will not degrade gracefully."
Going by the accelerating sales of ESCON/FICON and Fibre-Channel director switches at McDATA, Inrange and CNT over the last 6 quarters, EMC is widening its lead over the rest of the industry. EMC is clearly driving the growth in the storage networking industry. Nobody else is close except for perhaps Compaq in the small SAN segment of the market.
As it relates directly to McDATA, IBM rushed its Shark to market last year without any fibre channel connectivity as it finally figured out EMC's powerful game plan in this new market segment. The increase in McDATA's FICON sales to IBM, its exclusive customer, from $1 million in 1H99 to $13.4 million in 1H00 indicates the intensity with which IBM is rushing FICON to market to keep the performance gap from widening especially since it has a major mainframe upgrade cycle scheduled during 2H00.
EMC 1Q2000 - 2Q2000
1Q00 2Q00 Q2Q Y/Y
Total Storage Revenue $1.4B $2.0B 43% 43%
Total Storage sold
with FC connectivity 600M 749M 25% 100+%
ESN (high-end SAN) 250M 400M 60% 740%
Clariion (mid-range SAN) 98M 141M 44% 30%*
Celerra (high-end NAS) 90M 100M 11% 600%
EMC Software 280M 350M 25% 96%
EMC Services/Rentals 115M 132M 15% 61%
* DG acquisition closed during 4Q99
EMC is posting start-up type of numbers in key parts of its business. These numbers clearly reflect the early post-Y2K trend towards storage networking, a second generation architecture that borrows and improves heavily on the original storage networking architecture in the mainframe market. Instead of a proprietary channel technology like ESCON, however, it is utilizes frame-based Fibre Channel, a standards based protocol.
The fact that a relatively large proportion of its customers are still buying Classic Symmetrix ($1.25B in 2Q00) may indicate more conservative deployment patterns among EMC's installed base that may be waiting for IBM's mainframe introductions later this year before deploying their SANs.
Here are some other indirect signs of the true promise of storage networking at this very early stage.
80% of EMC Software Revenues in 2Q00, or about $280 million, came from 8 products enhanced for storage networking (e.g., integrated SRDF/TimeFinder) or introduced during the last 11 months (e.g., ControlCenter). This may be a too subtle point to make at this early stage, but the highly complementary design of McDATA's EFC Connectivity Manager and EMC's ControlCenter suggest strongly that EMC is extending its industry-leading microcode and mapping technologies inside the box -- physical mapping, logical mapping, line of business mapping with embedded load balancing, embedded accelerators, embedded diagnostics (degradation and failure), and caching algorithms -- to outside the box in the storage networking architecture that is expected to dominate the core of enterprise and carrier networks.
Over $600 million in 2Q00 revenues came from systems that were only introduced last 4/25/00 and available for only 9 weeks during 2Q00.
Furthermore, one can sift through the financials and product roadmaps of key suppliers like MCDT, CMNT, SEG, QLGC, EMLX, JNIC, FNSR, and BRCD to see the corporate deployment patterns that are just becoming visible.
Already, SEG -- the dominant enterprise drive vendor which has its own SAN company in Xiotech -- is pricing its 2G-bit/sec FC drives at par with its SCSI drives. Has anybody ever seen a disk drive with an IP or Ethernet interface? EMC has qualified 2G-bit/sec FC HBAs (equivalent of NICs or network interface cards) from EMLX, JNIC and QLGC (?). More importantly, there is nothing to indicate that EMC, which is the exclusive beta tester of McDATA's next-generation ASICs and Director Switch technology (see EMC-MCDT Master OEM Agreement in S 1/A dated 7/24), is having problems. Even though it qualified Brocade switches last quarter, Brocade still doesn't interoperate with Connectrix (which uses 1-2 McDATA 32-port Directors) based on the compatibility matrix at the EMC site.
emc.com
If Kumar wants to keep on raising this IP/Ethernet bogeyman, he may want to gauge true corporate demand by checking up on the sales of CMNT's SAN over IP product line. During the last quarter, CMNT booked $1.9M in sales from EMC's SRDF over IP which is based on SAN over IP. CMNT also booked $3+M in sales from Compaq for its various SAN/WAN connectivity products. Here's more on IP.
Message 14252400
The contrast is clear: accelerating sales in FC components and systems already at a several billion annual revenue run rate versus minimal and sporadic sale of SRDF over IP and SAN over IP products. |
