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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: Bob Frasca who wrote (10508)	6/20/2000 6:39:00 PM
From: Gus	Read Replies (2) \| Respond to of 17183

Actually, Inrange (who is both licensing the technology from Ancor and is an Ancor OEM) and Ancor are the only ones with a FC-based fabric director product. Ancor/Inrange demonstrated a 64-port FC-based director switch product ONLY last 5/30/2000. Mcdata has already been shipping its 32-port FC-based director switch product to the majors including EMC and IBM. I believe that accounts for a large part of Mcdata's $47 million revenue base during the last quarter. That's along with its ESCON/FICON product targeted at the large ESCON-based IBM-mainframe compatible market. I don't think Ancor/Inrange are shipping their 64-port director switch yet, are they? Mcdata is clearly more experienced selling to the market for those kinds of high-performance director switches and that's why they have 99% of the early-stage director switch market. I'm aware of Ancor's plans to rollout a 128-port FC switch at the end of the year as well as its role in Infiniband, but Mcdata isn't exactly standing still nor is Infiniband a major threat to the fast-growing FC installed base (read: future legacy installed base) for the next 3-5 years. And yes, EMC recently qualified Ancor's 64-port product, but the EMC plan is to clearly take advantage of the competition between Ancor, Brocade and Mcdata, which is coming out with its own switch. From the Mcdata prospectus: We have developed ASIC technology that serves as the foundation for the development of a complete family of SAN products. Our ASICs provide building blocks at the circuit level for implementing fibre channel switches. These ASICs combine a number of fibre channel functions in a single chip that substantially reduces the number of components needed in our fibre channel switches. Our years of design expertise in fibre channel technology and large scale switching solutions allows us to deploy high availability SAN fabrics. These ASICs are used in our next generation switch products, which are currently undergoing testing. The implementation of our new switch architecture is based on a common hardware and software design. The architecture enables product designs that span the high-end and mid-range storage computing environments with gigabit performance and 24x7 operation.... ....Our next generation of fibre channel SAN products provides the highest port density, non-blocking, single stage switch that enables a fabric to scale beyond 8000 ports. In addition to the support for full duplex 1.0625 Gbps ports at very low latencies, the design supports 2.125 Gbps and future 10 Gbps links. Message 13865004 You are correct that Mcdata is currently using two 16-port Brocade switches in their 32-port ED5000 director switch. That's part of an OEM agreement that goes all the way back to 1996 when both were involved in pioneering and validating the FC switch market. I don't exactly understand yet the complete impact of the 1998 patent litigation/settlement on the current relationship between Mcdata and Brocade, but Brocade currently has about 80% of the FC switch market while Mcdata has 99% of the FC-based director switch market. The point is that the director switch market is NOT an easy one to enter, partly due to its support-oriented nature. If it were, a switch manufacturer like Brocade could have easily extended its dominance of the FC switch market to the director switch market. I think that EMC is trying to unload McData while it still can to keep it from becoming a corporate lodestone that drags down earnings. I think you're wrong. Here's why. Since EMC reorganized Mcdata in 1997 by setting up Mcdata as an independent subsidiary, with a $10M cash infusion from Mcdata insiders -- which accounts for the decrease of EMC's ownership of Mcdata Class B to 85% -- EMC has recognized ESCON revenues as its own while paying Mcdata a service fee for actually designing and producing the ESCON director switches. Mcdata recognizes all FICON and FC-based director switch revenues on its own books, which all get prorated currently under EMC's books since they still retain control of over 50% of Mcdata. So, an independent Mcdata will have all the revenues from the faster-growing FICON and FC-based director switch product lines while EMC continues to absorb the slow-growth of the ESCON director switch product line, which is an increasingly smaller part of its revenue mix because of its accelerating internal growth. If your theory that EMC is trying to unload Mcdata were correct, EMC would have bundled the ESCON revenues with Mcdata, yes? What I think we may eventually see is Ancor, Brocade and an independent Mcdata compete to leapfrog each other in the interoperable FC switch business with the current winner able to gain market share in different segments (entry-level, mid-range, high-end) of the FC-based director switch market. Mcdata has serious time-to-market advantages in that kind of competition because of its understanding of the nuances of that installed base and its proven track record in selling to a market segment that will grow at what I think is a conservative 127% annually for the next few years.