What's Really Behind Sun's Deal With Brocade?
By Herb Greenberg
Senior Columnist
2/7/01 10:00 AM ET
Wednesday wallop:
QLogical (yes, again!): Tension continues to mount in the battle between the shorts and longs over QLogic (QLGC:Nasdaq - news - boards), and it intensified Tuesday when Sun Microsystems (SUNW:Nasdaq - news - boards) announced it had qualified Brocade Communications' (BRCD:Nasdaq - news - boards) fibre channel switches to work with Sun's server and storage products. The spin, from QLogic bulls, was that this was great news for QLogic, because Brocade wasn't named as a replacement for QLogic as the sole supplier to Sun's servers. (Whew!) But was the news really that good for QLogic?
Depends on your perspective, and the perspective of the short-sellers is that QLogic is really the loser because Brocade, which has the lion's share of the fibre switch market, now has a relationship with Sun. If Sun's customers want Brocade switches, they can now get them. After all, just because one company is the official supplier doesn't mean its switches will be used if its customers have a choice.
Indeed, that's the message Sun is trying to send. Denise Shiffman, marketing VP for network storage at Sun, told me that Sun's strategy for the past six months has been to have an "open" storage area network, or SAN, "so that any quality vendor that wants to work in the Sun SAN can. Brocade is first on the list, clearly because they have a lot of momentum. It's the beginning of what I expect to be a long and fruitful relationship."
She says more vendors are likely. Where does that leave QLogic? Shiffman says QLogic will continue to be a supplier of fibre switches for customers that buy directly off of Sun's price list. She says the company's switches initially helped Sun "give customers a highly conformed solution." But she adds that customers have since shown more of a desire to pick and choose. What's more, according to a source who was at Sun's analyst meeting Tuesday, Sun said it has not guaranteed QLogic a specific amount of business.
Goldman Sachs analyst Laura Conigliaro (who doesn't follow QLogic, and who was calling from the Sun analyst meeting) adds that Sun had been losing ground in the storage market. "In some respects you go where the market is, and Brocade has substantial market share." That market share, in turn, she says, could help "gain mindshare with Sun if for no other reason than Sun will want every influence that allows it to pick up presence in the storage market. And from Brocade's point of view, there's something to be said for this not being an OEM [original equipment manufacturers'] agreement, because it means they and Sun will get to sell to customers together."
QLogic officials declined comment.
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