Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: princesedi who wrote (27034)	5/18/2000 1:53:00 PM
From: princesedi	Read Replies (1) \| Respond to of 29386

Copied from the Qlgc chat board Piper/Brcd Report as posted by ms_tify 5/17/00 11:58 Here's that Kumar report in which he trashes Brocade. I'm not including stuff like email addresses, tables (which format poorly and contain info like EPS that's available elsewhere) or disclaimers, and I don't guarantee that this is the real thing, though it looks pretty genuine. *************** A Few Fries Short Of A Happy Meal?Rating: Buy, Aggressive Highlights: --Upside driven by early adopter market --Qlogic/Ancor's lead in high-density switches and ability to integrate switches in storage devices will seriously impact Brocade --Lack of support for heterogeneous SAN in W2K will impede deployment --Lack of system software support makes FC SAN less appealing to the broad market --Software Integration will be the chasm between SAN early adopters and a large market --Infrastructure development on broad scale will be targeted at IP SAN solutions Brocade reported second quarter sales and EPS of $62M and $0.11 ($0.09 fully taxed), versus consensus estimates of $58M and $0.08 respectively. Upside in the quarter was driven by initial shipments to previously announced OEM programs and a continued expansion of system integrator sales. Due to mix of higher port density (8/16) switches and lower OEM sales, gross margins expanded 500 basis points sequentially. Our FY00 and FY01 revenue and fully taxed EPS estimates are $277M, $529M, and $0.37 and $0.67, respectively. The strong sequential growth was attributed to the market moving from homogeneous installations to heterogeneous installations. What this really means is the market is moving from single server, single storage installations to include multiple servers and storage subsystems on a storage network together. Another way of stating this is that the market is moving from test installations to initial deployments. However it is dangerous to extrapolate the numbers we have seen so far to say that it will be a large market. It just seems to have all the markings of an early adopter market. The Company's contention that customers are migrating en masse from SCSI to FC is ludicrous. There are a number of reasons that will not transpire, the most basic of which is that SCSI works perfectly. FC-SCSI bridges add a lot of cost/complexity with a reduction in performance. Customers are not going to replace SCSI with a technology that increases cost/complexity just to be part of a network. The Company also erroneously stated that the industry will adopt its FSPF routing algorithm. As we have indicated in our earlier industry note, the FSPF is an adaptation of OSPF - an existing Ethernet standard. It is arguable if the SPF algorithm is either useful or desired for SAN. It makes sense for Ethernet but not FC. Brocade is far behind Ancor in the development of high-density (Director) switches. Realizing this, Brocade is making the erroneous statement that it is easier to build a large fabric by cascading a large number of small switches than a small number of large switches. This is categorically wrong as the cost per port goes up disproportionately by aggregating small port count switches. Also, the performance will be below high-density switches where the aggregation is tightly integrated into the backplane. Furthermore, Qlogic/Ancor's ability to embed switch functionality into storage devices, a la Symmetrix, will dramatically impact Brocade. Storage networking is an interesting technology and market. While it is generally agreed that it is valuable and will be around, its evolution is not as clear. Brocade believes heterogeneous networks are on the verge of becoming a large market, but there are definite potential pitfalls that it has no control over. Among the most important is the lack of support for heterogeneous storage networks from Microsoft (MSFT) in its Windows 2000 product. If storage networks are going to be truly heterogeneous, it needs to be able to support heterogeneous operating system platforms. Unfortunately, this support is not available from Microsoft yet. The point is that storage networks are just moving past their infancy and that the biggest hurdles are yet to come - those that involve integration with file systems and database systems. For the most part, these software components are not very far along in their development of SAN-enabled functionality. This lack of system software support will likely make storage networks less appealing to the broader market. While Brocade believes the market will follow a smooth transition from its heterogeneous networks to application-enabled networks, its view of application-enabled networks may be a little narrow. While functions such as serverless backup (third party copy) may be compelling for solving backup problems, this is easier said than done. The fact that a data mover has the ability to copy data from device to device is one thing. The ability to integrate closely with an uninterested file system is something else entirely. Simply connecting things is the easy part, and a lot of hard work has been done by Brocade and others along the way. However, the hardest part - the big system software integration effort is still to come. The time it takes to make these things work may define the classic chasm for storage networking between early adopters and the large market buying the "killer app." Brocade seems to believe that the expansion of the market will follow some sort of natural progression. History tells us that serious infrastructure development on a broad scale can take much longer than anticipated as unexpected developments occur. Barriers beyond the control of Brocade are likely to develop. While Qlogic/Ancor will be a new thorn in Brocade's life, the biggest thorns lie outside the industry in other areas it cannot control or influence. Investment Thesis Even with the recent multiple contraction, Brocade PEG multiple (4x) is at the high end of the range of leading enterprise vendors. The upward bias in short term estimates will be more than offset by the continued multiple contraction due to increased competition in FC and IP SAN solutions.