SECTOR: FC/SAN/NAS
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Buck's take on the FC market - Part I
Why do I feel like the time I made my first pitch to a customer?
At the request of DownSouth, I've done a Q&D look at what I think of the Fibre Channel / SAN market. In that market are eight companies that are publicly traded. They are ANCR, BRCD, CRDS, EMLX, JNIC, QLGC, VIXL, and ZOOX. The natural division of these into sub-markets are:
HBA mfrs. EMLX, JNIC, QLGC
Fabric mfrs. ANCR, BRCD, VIXL and ZOOX.
Router mfr. CRDS
Explanation of terms:
HBA = Host Bus Adapter; equivalent to a NIC in a LAN; attaches host platform to SAN
Fabric = a FC switch or hub; the core of a SAN; what HBAs typically plug into (yes, I know "fabric" is a FC standard term for switches only, but I can't think of a better word to use)
Router = a FC inter-connect device; allows native SCSI hosts or devices to connect to a SAN; plugs into a fabric device.
I believe that FC is a discontinuous innovation in and of itself for the SCSI market. FC "beats" SCSI by doing the following:
- longer distances between hosts and peripherals (10km for FC vs. 25m for SCSI)
- higher bandwidth (100MBps vs. 80MBps, plus FC is introducing 200MBps, w/ 400MBps in the standard, and upward)
- more addressability (~2MM devices per FC network vs. 15 per SCSI bus)
- better sharing of devices (unlimited hosts accessing the same device vs 1-2)
Therefore, I believe we have the start of a Gorilla Game with FC.
First, though, some FC/SAN 101:
FC is the backbone of Storage Area Networks, or SANs. SAN is a discontinuous innovation to the SCSI storage market. Simply put, SANs break the linkage between a server and it's storage. That storage is now on a network, where it can be shared amongst multiple servers. A customer can now scale his servers and storage seperately. Prior to FC and SANs, a customer would run out of slots on his server for storage interconnects (remember the 15 devices per SCSI bus, which was rarely reached, due to performance limitations on the bus itself). Once that happened, a new server would be installed and applications would be shifted to the new server, and data would be moved to the new server's storage. With FC and SANs, a customer can simply plug in more storage on the SAN and boost the amount available to the server (and any other server on the SAN). Companies like EMC, Hitachi, IBM, and countless others like this effect, due to the unbelievable growth in storage requirements (but that's another market.)
Another advantage of SANs is the ability to share expensive tape libraries amongst multiple servers. Prior to SANs, a tape library would be attached to one server. Tape is the most economical medium for backup and archival. Backing up a server farm required that the server with the tape library attached to it (the backup server) pull all the data from other servers across the LAN, and write it to tape. This makes for long backups, because of the inherent bottleneck at the backup server. Another bottleneck is at the LAN. A LAN is designed for passing lots of small messages amongst many hosts. Backups consist of very LARGE messages flowing in one direction. With a SAN, all servers can access the tape library, and perform their own backup, anytime. SANs use native I/O, and are designed for those LARGE messages, with low overhead, so you get better throughput on the same piece of fiber. This is called LAN-free backup.
Next on the backup front is Server-free backup. In this model, a server would send a command to a SAN device to move Data X from Unit A to Unit B. The SAN device would perform the data movement, and report back to the server when it was finished. This frees up the server from read and write overhead, and allows those freed-up cycles to go do some business, hopefully making money.
Therefore, I believe that we have the killer app for SANs in server-free backup, and other server-free data movement applications. More likely, it will be called server-freeING, as it does allow a server to be freed up from the tedious task of moving bulk data around, which is pure overhead and doesn't make a company any money. It could save their entire company if a disaster struck, but that's another market.
Now, to the market itself. The three sub-categories that I see are HBAs, fabrics, and routers. Other SAN components, and hence potential games, are hosts and devices. I am not addressing them here, simply because it is too large to quantify in one post. I will try to address them next weekend. Besides, you know them already as EMC, IBM, HP, SUNW, etc., etc., etc...all the platform vendors and the storage vendors. I believe that we have the potential for mini-tornados within the FC space itself.
I do not believe that the HBA market will produce a Gorilla, but will produce a King and/or a bunch of Princes. HBAs are to SANs as Ethernet cards are to LANs. It is hard to differentiate or add value in that space, because of the need to adhere to standards. Barriers to entry are not high...FC chips are readily available, and the standard is published. OTOH, engineers who write the drivers for the HBAs are rare. This, to me, is a non-proprietary open architecture.
I do believe that the FC fabric market will produce either a Gorilla or a Very Strong King. I'm wishy-washy on this for a few reasons, not least of which is my inexperience at GGing. I take most of my cues based on what I have seen in the LAN and WAN market over the last 10 years, and that means switching MUST be standardized to sell to the customer. They must inter-operate to accepted by the market. To me, that means they must have a non-proprietary open architecture. However, by building software into the switch that forces others mfrs. to adapt to it because their potential customers demand it, it then becomes proprietary. This is a function of market share, which is essentially doing what your customer wants you to do. On the washy side, though, switches are switches...the fastest one is the preferred one at the core of a network. Value-added software can only slow down a switch...if a switch is looking at more than the source and destination of a frame, and moving that frame from point A to point B, it's gonna be slower. Does that matter today? Tomorrow? It depends on how fast this SAN stuff ramps. This is where I see the BRCD v. ANCR battle right now. VIXL and ZOOX are starting from a bad post position. They both specialize in hubs, which are, yes, analogous to Ethernet hubs. They share bandwidth amongst devices, and don't have the performance of switches. Both cos. have announced switch plans, with VIXL actually delivering on them today. ZOOX has a new switching hub called Capellix that is making a lot of noise today, and I expect them to be the bigger of the two between VIXL and ZOOX.
I see now that I really need to do the financial number crunching on this, a task at which I am pitifully inept. Fortunately, I've got a good guide in TRFM, so watch this space.
I have broken my posts in two. I'll have the router sub-market out soon. To me, this is the exciting one, though, so stay tuned.
buck, who feels quite inadequate at this point...
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Buck's FC - Part B
Finally, to the router side of it. I've broken CRDS out, because I believe that it has the most potential to be a gorilla, or at least a mini-gorilla in a mini-tornado. Hence, I've put more time, thought and research into it. I hope that's apparent.
CRDS has a proprietary open architecture for FC routing (assuming I understand POA correctly). The current product set (in it's third generation) connects a SAN to SCSI devices, typically tape drives, but not limited to them. They also connect SCSI hosts to SANs. These hosts are either a) too old to have FC HBAs available, or b) the customer does not want to install FC HBAs in them (costly downtime, expensive OS upgrades, etc.). This host connection is a CRDS exclusive today. CRDS has demoed the server-free backup capability mentioned in Part I at Comdex and N+I, for the last two years.
CRDS also has announced (and demoed at Comdex99) a router that moves FC data across an ATM WAN or LAN link. This allows the SAN to be extended beyond the 10KM limit of pure FC. Initial applications will probably remote electronic vaulting for disaster recovery and data mirroring for remote-site data sharing.
CRDS is also involved in the InfiniBand game. Intel invested in them for IB routers, to attach IB-enabled servers to external non-IB devices and networks. The proof-of-concept router was demoed at the Intel Developers Forum in August of 99.
These things -- FC<>SCSI, FC<>ATM, IB<>who_knows, and server-free backup -- represent to me a strong proprietary open architecture.
CRDS had been an OEM-only mfr. until 99. They have announced OEM agreements with ADIC, ATL, Bull, CPQ, DELL, Exabyte, Fujitsu/Siemens, HP, Inrange, McDATA, and STK. They have since opened up channel sales agreements with a number of VARs and distributors. CRDS has also announced partnerships with software cos. Legato, Tivoli, Veritas, and Computer Associates. These ISVs will provide enabling applications that take advantage of server-free backup, as well as other data movement applications. They will also provide management capabilities for the SAN that do not exist today. These partnerships provide the beginnings of a strong value chain.
CRDS' barriers to entry seem to be low-ish to medium. SCSI is a standard, FC is a standard, ATM is a standard, and IB is a standard. However, the internal software is what seems key in this space. Server-free backup is done with this internal software. If you follow the Cisco model of routers, other applications can be added here, such as access control lists. SAN-specific apps could include data mirroring and snapshot copies of databases. Their follow-on products, ATM and IB, are sure to include some elements of these, as well.
My question is how do we value this firmware, and it's capabilities? I'm still learning how to do that.
Additionally, CRDS has a large list of interoperable configurations that they have made public. They don't guarantee these configurations, but they do state that they have verified interoperability with a huge amount of software and other SAN components. This amount of interoperability testing and verification seems to be BTE, but I'm not sure how it might be valued.
I believe that there are medium switching costs for end-user customers, when they get them. Since the value chain(?) is so long -- application, platform, HBA, fabric, router, tape library/RAID device -- I think it will be "not simple" to change from one router to another, because of the application support. CRDS' advantage here is being the firstest with the mostest. How do you value the importance of one router over another if you are someone like a Legato or or Tivoli or Veritas or CA?
CRDS has three competitors at this time, none of whom are publicly traded:
ATTO Technologies: produce a storage router; have a strong channel; well-positioned in the Apple market. They have one announced tier-three OEM, MicroNet.
attotech.com
Chapparal Technologies: an Adaptec spin-off; builds FC RAID controllers that they have adapted to storage routing. They have one announced tier-two OEM, Qualstar.
chaparraltech.com
Pathlight: newer company; directly competing with CRDS, as they have no other products except storage routers. They have one tier-one OEM (IBM!!!), and two tier-three OEMs (Glyph, Aviv), both of which are niche-market (bowling alley?) suppliers.
pathlight.com
Bottom Line
Crossroads can be a gorilla inside the FC tornado, according to my notes:
- They have a POA in their multi-protocol routing software.
- They have created new markets, in FC<>SCSI, FC<>ATM, and server-free data movement.
- They have an extensive value chain in their OEMs and application software partners. It seems to be strengthened by their interoperability testing.
- They have medium barriers to entry, in that the software in their box is relatively complex, and I/O engineers aren't growing on trees (they all want to do B2B Java, instead of dull, old I/O<g>) Again, interoperability testing COULD be a BTE.
- They have a product that is "worth more" because of their extensive interoperability testing, and configuration verification, and their announced partnerships.
- Switching costs are an unknown today, and the biggest one that would preclude gorilla-dom. Will the application providers (Tivoli, et al) get to market fast enough to make CRDS a de-facto standard with whatever CRDS enables? Will that "standard" survive assaults from others? Will others have de-facto standards that supersede CRDS' standards?
- They are first-movers (not a GG criteria, I know, but one I respect).
They can be found at crossroads.com Skip the intro unless you just love Flash animation and the sounds of a throbbing internal combustion engine.
Important Note: Absolutely none of this takes into account last week's announcement of their acquisition of Polaris Communications, a mainframe-focused company. Part of me says why bother, another part says "ENTERPRISE!" I dunno...must digest first.
So, there you have it. Shoot if full of holes. I know the financial side is missing, and I need to know what is important, particularly for these little bitty newly public cos. FWIW, I'm re-reading a LOT of TRFM. Tell me what else I'm missing, and I'll go get it. The lovely Mrs. Buck is out house-hunting, I've got both beer and cigarettes, and the NHL All-Star game is on later, so I've got the makings of a great Sunday afternoon (too bad it's not baseball season yet.)
buck, who feels like one of those ice skaters waiting for the judges to post their scores
PS Dang, this seems long!
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RE: Fibre Channel Opportunities
This was posted on a Yahoo board without a link. I assume it is a recent article but cannot confirm.
JNI supplies host bus adapters for Fibre Channel applications. These boards plug into a computer and connect the computer to the (FC) network. As Buck pointed out, they are very similar to Ethernet NICs. JNI's main competitors are Emulex and Q-Logic.
I have highlighted a couple GG relevant points.
Greg
JNI: Highest Expected Growth of any Storage Stock
by Chris Connor
Overview
JNI Corp {JNIC} provides complete fibre channel solutions to the SAN market, but it is a leading provider in its core technology of host bus adapters. The company sells its products to an impressive customer list that includes EMC {EMC}, LSI Logic {LSI}, Amazon.com {AMZN}, and GTE {GTE}. Besides SANs, the company's products have been used in a wide variety of applications such as digital graphics, video networks, and video editing for the broadcast and entertainment industries. Furthermore, the company's high speed data processing applications have been used in the Internet Service Provider (ISP) industry.
Outstanding Operating Results
Not only is JNI growing its revenues rapidly, but it is also profitable. For the 9 months ended 9/30/99, revenues skyrocketed nearly 274 percent to $25.8 million from $6.9 million during the same period a year earlier. Moreover, the company reported net income of $2.2 million versus a loss of $169,000 over the same time period in the prior year. JNI has also generated blistering sequential revenue growth over the last two years. In fact, the lowest sequential growth that the company has generated is a very strong 21 percent. For the last two quarters, the company has grown its revenues 34 percent and 27 percent, respectively.
Risks
Taiwan Semiconductor manufactures an important component of JNIC's products. Recently, Taiwan Semiconductor's operations were hampered by an earthquake. JNI does not believe that it will be hurt significantly by this problem with Taiwan Semiconductor, but JNI could experience a supplier problem in the future as it continues to grow rapidly. In addition, a large percentage of JNI's products are designed for Sun's {SUNW} high-end servers with SBUS interfaces. According to JNI's S-1, "Sun has announced its intention to discontinue production of servers with the SBUS interface, and therefore, sales of ... products designed for the SBUS interface will diminish over time."
Investment Summary
JNI certainly appears to pack quite a punch as an investment with its torrid growth and its ability to attain profitability. Currently, most pure SAN plays have trouble turning a profit because SAN is still an emerging industry. Most pure-play SAN companies are more focused on product development, gaining original equipment manufacturer customers, and growing overall revenues than profits at this point in their life cycles. In the short term, JNI's stock could see significant upside due to its stellar operating results as it garners attention on Wall Street. Since the stock has been traded just a little over two months, it does not yet have a large following on Wall Street. Over the long term, the two analysts who cover this stock feel that JNI will grow faster over the next five years than the likes of Brocade {BRCD}, Gadzoox {ZOOX}, Crossroads {CRDS}, and Ancor {ANCR}. Analysts project that Brocade will grow earnings 42.5 percent per year over the next five years, Gadzoox 50 percent, Crossroads 40 percent, and Ancor 45 percent - while JNI is projected to grow earnings 52 percent per year over the next five years.
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