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Technology Stocks : Son of SAN - Storage Networking Technologies -- Ignore unavailable to you. Want to Upgrade?

To: J Fieb who wrote (2559)	1/18/2001 1:24:33 PM
From: Gus	Read Replies (3) \| Respond to of 4808

Here are some interesting datapoints from Compaq, which accounted for at least 25% of Brocade's MRQ revenues according to Ashok Kumar of Piper Jaffray. Before that, however, here's a useful overview of Compaq's storage business dated 5/22/2000 from SSB: ...Compaq is already the world's largest vendor of multi-user storage with $5B in annual revenue. 50% is server attached (growing 0% yr/yr), 30% is external (growing 35-40%) and 20% is secondary/tape (growing 6-8%). Storage software is on a $150M annual run rate and growing 300% yr/yr. Second, EMC released this preview last December right around the same time that Sun issued its press release. ...A new report by International Data Corp. (IDC) ranks EMC the number one overall storage provider based on 2000 market share, gaining more share this year than any other company.......According to IDC, EMC is projected to have gained market share again in 2000, while Compaq, IBM, Hewlett-Packard and Hitachi Data Systems are all projected to have lost storage market share in 2000. emc.com The loss of market share by the dynamic duos is very significant considering the type of pricing strategies both teams employed earlier in the year as detailed by Gary Helmig of CSFB who issued a research note describing the high-end pricing environment at that time. HWP was then pricing Hitachi's 9000 box at a full 40% premium to Symmetrix while it was pricing Hitachi's 7000 box at a full 30% discount to Symmetrix. EMC considers Hitachi to be its closest rival in terms of hardware functionality, but Hitachi generally suffers from a major software gap that is going to take some time to fill. HWP has OpenView, which competes with system management frameworks from CA, Tivoli (IBM) and BMCS, but its 1999 Transoft acquisition and internal software development were still not producing any significant amount of product so the loss of market share is not surprising. IBM was then selectively pricing the Shark as much as 70% below Symmetrix with a willingness to go down as much as 90%!! This is the same Shark that Compaq is now reselling as the Red Shark as part of their apparently color-coordinated alliance (IBM-Blue Shark; Compaq-Red Shark). EMC was reportedly matching IBM's hardware pricing in selected accounts, but was absolutely not discounting its software, which is generally priced at around 50% of hardware list price. Tivoli's sluggish performance for the past two quarters and the muted references to the performance of the storage division in the latest earnings reports suggest strongly that IBM Storage may have hurt more than helped itself with its scorched earth pricing strategies. 90% discount!!!! If nothing else, the ineffectiveness of those aggressive storage hardware pricing strategies continue to validate the view that at the high-end, storage management accounts for up to 12x the cost of the hardware and is probably the single most important consideration in the procurement decision. Here's where it gets interesting from a size-of-the-SAN point of view. Compaq is claiming that they want to go from selling 1,000 SANs a quarter coming out of 2000 to 2,000 SANs a quarter in 2001. This preview article describes their plans in more detail. Some extracts: Compaq SAN Upgrades To be announced next week Current maximum SAN size - 4 switches (52 ports, 12 ISLs) Upgrade to - 20 switches (300 ports, 20 ISLs) ISL = interswitch links To be released by 2H2001* Upgrade to - 1,000+ ports, unknown number of ISLs Includes: new director switches, 64-port switch, 128-port switch Message 15200081 Combining these datapoints with some McData datapoints presented at the recent Needham conference produces a very interesting picture of how fast these fabrics are growing: Range of SAN fabric sizes in terms of directors in the backbone - 1 director (32 ports) to 70 directors (2,240 raw port count). Typical installation - 20 to 40 directors (640 to 1,280 raw port count). MCDT's customer samples resemble EMC's high-end customer base which is not surprising since EMC still accounts for 70+% of MCDT's revenues. - 9 of 10 telecommunications company (ATT, BellSouth, Sprint, etc) - 5 out of top 5 Network Communications Company - 4 out of top 5 Commercial Banks (Chase, First Union, etc) - 40% of Fortune 100 Number of end-users as of August 2000 IPO - 400+ Number of end-users as of January 2001 - 900+ mcdata.com EMC's Connectrix accounted for about $98M out of its total ESN revenues of $480M in 9/30/2000. According to EMC, typical SAN size was 100-150 ports with atypical SANs consisting of 1000-15000 port. Though sketchy datapoints, there is enough to suggest that these large fabrics are growing really fast. The earnings reports from different parts of the supply line should reinforce further or invalidate my early hunch that not only are these large SAN fabrics going to grow much faster than the small SAN fabrics, but directors will pull in more department and workgroup switch sales as these large fabrics expand across the enterprise.