Is Brocade Doing a Bait and Switch?
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Brocade Communications Systems Inc. (Nasdaq: BRCD - message board) is reportedly using bait-and-switch tactics at the low end of the Fibre Channel market in order to compete more effectively against QLogic Corp. (Nasdaq: QLGC - message board), Byte and Switch has learned.
An independent storage industry consultant, who requested anonymity, says Brocade is promising its original equipment manufacturers (OEMs) a new, lower-cost 2-Gbit/s Fibre Channel switch -- and better deals on this product when it eventually ships it -- to whichever OEMs sell the most of its current 2-Gbit/s switches today.
The as-yet unannounced product, expected to be called the SilkWorm 3350, will offer less functionality than the current 3800, for a significantly reduced price, according to the source. It will likely include a stripped-down version of the software without the extensive diagnostics and advanced redundancy features of the 3800, the source says.
But there's a catch. For an OEM to get a good deal on this new switch, when it eventually arrives, the source says, it must sell the more expensive 3800s first.
Is this a regular tactic employed by Brocade? The company declines to comment. So we tracked down a former founding member of Brocade's management team, Roy Sardina, now chairman of SAN Valley Systems Inc., who had this to say: "Getting competition going between OEMs sounds like good sales to me. It's standard, standard stuff."
Right. It sounds fair enough. But what if at least two of Brocade's OEMs think the new switch is just vaporware and will never exist? Sardina dismisses such a suggestion, saying, "They are all gentlemen over there [at Brocade]."
Our industry source says IBM Corp. (NYSE: IBM - message board) and Compaq Computer Corp. (NYSE: CPQ - message board) have both been approached by Brocade about promoting 3800s in order to be the first to receive the lower-cost 3350s.
Neither Compaq nor IBM officials would comment on the record. But it seems that Compaq, at least, has had similar run-ins with Brocade in the past. "We were expecting them to announce a 32-port device, but that was three to six months ago and we've heard nothing since," says a Compaq insider.
Most of the analysts we spoke to had no objections to Brocade selling a lower-cost switch, but they were skeptical that the company would employ bait-and-switch tactics as a sales strategy.
One Wall Street hedge fund manager, who declines to be named, says he wouldn't be surprised to see Brocade take more of an aggressive position against QLogic. "The biggest problem in the SAN market today is that it's too expensive," he says. "QLogic's strategy is to offer low-cost SANs, and this would be an easy way for Brocade to shore up the competition at this end."
David Hill, an analyst at Aberdeen Group agrees that "Brocade needs more of a response in this space." (See Two Gigabits, One Vendor.)
But analysts are not convinced that Brocade would try to pull a bait and switch to scare up low-end sales. "QLogic has reported flat switch sales for the last two quarters and has offered flat guidance, which hardly makes it a growing menace in the market," says Glenn Hanus, analyst with Needham & Co (see QLogic Reports on Q3).
Meanwhile, Dan Renouard, VP of research at Robert W. Baird & Co. Inc., says it would be suicidal for Brocade to mislead its partners. "The OEMs will be around forever, and they won't forget if Brocade screws them," he says. Renouard adds that the company is leaning more toward the high end of the market right now but is in effect torn between this and the very cost-conscious sector.
Thus far, however, Brocade is floundering at both, he says (see Brocade's Slip-Sliding Silkworm and Brocade Under Pressure).
— Jo Maitland, Senior Editor, Byte and Switch
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