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


To: D. K. G. who wrote (4416)2/16/2002 12:29:23 PM
From: andydaoust  Read Replies (1) | Respond to of 4808
 
Denis,

Doesn't the option holder have to pay an acquire price when exercising their options. Do companies report that as income now? Don't companies already report diluted earnings? I thought they reported what their eps would be if all options were exercised.

Andy D



To: D. K. G. who wrote (4416)2/16/2002 2:54:39 PM
From: George Dawson  Respond to of 4808
 
Senate Testimony on Enron:

I also found this senate testimony very interesting. It is by Frank Partnoy, a law professor who is apparently an expert in corporate financing:

senate.gov

This is fairly intense reading, but he provides examples of how derivatives are used and how this compares with past financial problems related to derivatives.

George D.



To: D. K. G. who wrote (4416)2/17/2002 4:53:30 AM
From: Gus  Read Replies (1) | Respond to of 4808
 

McData Wants Brocade to Disable Hardware
By Tim Stammers and Rik Turner

The two giants of SAN switching entered legal combat last week when McData Corp launched a lawsuit apparently aimed at the jugular vein of Brocade Communications Systems, in an effort to blunt a coming assault on its territory.

Alleging a patent infringement, McData says it is determined to force Brocade into disabling key frame filtering functionality within its products, something that could be a major engineering task for its rival company. The suit comes at a critical time for Brocade, and was launched the day after it finally announced that it is poised to ship a key product - its Silkworm 12000 with which it hopes to challenge McData at the high end of the market. That device is already late and Brocade can ill afford to see it slip any further.

The happy synchronicity of the suit, and the fact that a McData spokeswoman said she is "not aware of any plans" to launch suits against other companies also involved in frame filtering such as Rhapsody, Confluence, and Maranti, may suggest that the suit is only a feint or delaying tactic. Brocade suggested as much last week, and said it will fight the action "vigorously." It has however already settled one patent lawsuit from McData out-of-court, with a cross-licensing deal signed in 1998.

McData declined to make any statements about the timing of its action."Obviously law suits take a while to file. I can't comment on whether it [the timing] was a coincidence," the spokeswoman for McData said. McData - a former subsidiary of the famously aggressive EMC Corp - is however playing it to the hilt and has declared that it is after Brocade's blood, and is not prepared to accept damages, or negotiate a licensing deal. "The outcome we're after is disablement of Brocade's products," a spokeswoman for McData said.

That could be very damaging to Brocade. Not only would that involve the SN12000, but also Brocade's SN 38000 mid-range switch, the only shipping hardware from the company to implement the latest 2Gbit version of Fibre Channel. Last week Brocade predicted that these two products will account for 60% of its revenues in its current fiscal quarter.

Frame filtering is an emerging and valuable facility, but the real significance of the lawsuit is in the difficulty of removing it from Brocade's products. Brocade is likely to have implemented it in silicon, as McData has done in its initial implementation of the technology. Brocade was last week unable to confirm whether it has chosen the same route, but admitted that the common factor between the 3800 and the 12000 is the ASIC switching silicon.

"It would delay the SN 12000 by a minimum of six months, unless there's a way of turning off the frame filtering programatically. Otherwise it could be a huge deal," said Arun Taneja, analyst at the Enterprise Storage Group.

Brocade and McData are the two juggernauts of Fibre Channel SAN switching. They have yet to really cross swords, but are set to do so. Each holds around 90% share of their respective markets. For Brocade, that is the market for mid-range switches, and for McData it is the market for high-end large and sophisticated switching devices, known as directors. However Brocade's market is being marginalized. By its own estimates corporate SANs are growing at an average increase of 100 ports per quarter, and as a result its mid-range products are being renamed by some as simply "edge switches."

McData already offers these devices, albeit rather tamely, unveiling 16- and 32-port offerings in the fourth quarter of 2000 but, to date, has cornered only 8% of the midrange market by its own admission. If Brocade is to protect its stronghold there, it too needs to offer an end-to-end solution. A delay to the 12000 will give McData more time to whittle away at Brocade's market share. The device was originally promised to ship last year, and rumors that it was suffering development problems attracted a lot of attention from Wall Street last year. Last week, Brocade dismissed the rumors and said it will ship in this quarter.

As to how serious a challenge Brocade can mount to McData in the director class, Brocade itself is careful not to refer to the 12000 as a director, not least because its architecture is different, essntially comprising of a multiple of smaller boxes joined together (in fact, it is two of the 64-port switch which, in turn, is really four of the 16-port ones on a blade). It clearly will not debut with all the RAS functionality characteristic of true directors but, as the pundit put it, "some customers for Brocade's low-end switches want to stick with the same supplier as they grow, even though true directors have much greater functionality."

Beyond that, the issue is one of OEMs. EMC is still McData's primary customer in that area, say industry sources, with several of the other big players reselling Inrange, so in some sense, if Brocade can leverage its relationships with those other server vendors for its 16-port switches into its higher-end offerings, they might start reselling the 12000 alongside, or even instead of, the Inrange products, giving Brocade greater collective firepower vis-a-vis McData, albeit with a less performant switch.

McData denied the claim of one ComputerWire source that prior to its spin-off from EMC in 2000, it had completed joint research with Brocade. This the source said ended with a divorce settlement that divided up the resulting IP, and barred either side from suing for infringement of patents. McData said this version of events may have resulted from confusion over the April 1998 cross-licensing deal signed with Brocade.

The source said that even it such a joint development deal were signed it would be very unlikely that Brocade would be stupid enough to welch on it. Indeed, he went on, "this is almost a publicity stunt", opining that "McData still have that EMC mentality of putting winning first. They'll do anything to win business."

computerwire.com

Patent Number 6,233,236 has 13 patent references. The patent background provides a description of the problems that the patent is trying to solve and the limitations of the prior art, i.e., the 13 patent references. The rest of the patent establishes the novelty and the non-obviousness of the patent in several preferred embodiments.

Put simply, if the Fibre Channel open standard is A+B and this patent is A+B+C, Brocade has to come come up with something like an A+B+D patent to avoid infringement, but McDATA has 25 utility patents and 15 pending patent applications after $146M spent on R&D in the last 5 years so most likely McDATA has patents covering any combination of A+B+C+D or A+B+D+E etc. That leaves little room for Brocade to maneuver and explains why after $200M spent on R&D in the last 5 years, it has only produced 1 utility patent and a handful of patent applications that keep on getting shot down or delayed at the USPTO by one McDATA patent or patent application after the other.

Put another way, this patent provides the basic statistical eyes for the management consoles at the device level, at the fabric management level and at the enterprise level so if Brocade is forced to disable this ASIC-level feature, its SANs will continue to be blind. Brocade SANs are already notorious for being unnecessarily complex and highly prone to latency with SAN expansion. That advantage is going to snowball against Brocade when McDATA starts to introduce more advanced fabric services on top of that statistical foundation that facilitate the same type of storage-server, storage-storage and server-server traffic in the mainframe ESCON/FICON world.

From the '236 patent......

......A switch is a multi-port device where each port manages a simple point-to-point connection between itself and its attached system. Each port can be attached to a server, peripheral, I/O subsystem, bridge, hub, router, or even another switch. A switch receives a connection request from one port and automatically establishes a connection to another port. Multiple calls or data transfers happen concurrently through the multi-port fibre channel switch.

A key advantage of switched technology is that it is "non-blocking" in that once a connection is established through the switch, the bandwidth provided by that connection is not shared. Hence, the physical connection resources such as copper wiring, fiber optic cabling and radio frequency bandwidth can be more efficiently managed by allowing multiple users to access the physical connection resources as needed.

Switched communication systems work most efficiently when the switch resources are allocated efficiently. In other words, in a multi-port switch, each of the ports desirably processes an equitable amount of data traffic. When one connection through the switch absorbs an unbalanced amount of traffic, traffic delays are caused even while the switch possesses unused resources (i.e., unused ports and connection resources). The end result of an unbalanced switch is unnecessary average latency in processing traffic caused by bottlenecked connections within the switch.

Users desire knowledge about the data traffic that flows through a switch in order to efficiently manage that data traffic and avoid bottlenecks. A switch is most efficiently used if the traffic load through that switch is reasonably balanced. When a particular switch port or ports are used heavily by a single host or destination those ports are not available to handle other traffic. Similarly, it is desirable to have knowledge about the type of data traffic flowing between a pair of ports. In a fibre channel system, for example, the data traffic may comprise any of a number of FC-4 specified frame types. Knowledge of the frame type can be used to configure and reconfigure the communication network for more efficient utilization of resources.

Prior approaches provide a means for counting received or transmitted frames on a single port basis. This allowed a user to monitor traffic at a single switch node, however, does not provide an mechanism to reliably correlate the traffic between a source port and a destination port within the switch. In other words, the prior approaches enable one to monitor the traffic from a node port to a switch port, but not from one switch port to another switch port. The prior approach enables one to determine if a particular path or port is experiencing an unusually high load, but does not provide sufficient information to determine what host(s) is/are driving the port. If multiple hosts are driving the port, prior approaches are unable to identify the proportionate share of the load of the port for which each of the driving hosts is responsible. Moreover, because prior approaches are not protocol specific, it is difficult or impossible to tell what type of traffic is consuming the bandwidth of a particular host port.


A need exists for a method and device for measuring. protocol traffic that provides information about traffic within a switch from a source port to a destination port. A need also exists for an analysis tool that measures traffic on a protocol specific basis........

patft.uspto.gov

Contributory Infringement (sale of a component):

In summary, to be a contributory infringer under 35 U.S.C. 271(c), a party must sell a component used in a patented combination, where:

the component constitutes a "material part of the invention";

the component has no other "substantial, noninfringing" uses;

where the party knows the component to be "especially made or especially adapted for use in an infringement of such patent."

The contributory infringement statute is designed to prevent those who knowingly provide a specially adapted component to be used in an infringing system from profiting from the sale of that component. The contributory infringement statute has very important exceptions that will not allow the broadening of the patent right to cover the sale of unpatented staple articles of commerce, even if they are used in an infringing process. It is also important to note that there can be no contributory infringement in the absence of direct infringement......

google.com



To: D. K. G. who wrote (4416)2/18/2002 1:58:35 AM
From: Gus  Read Replies (1) | Respond to of 4808
 
.....Brocade Communications Systems, the leading- edge networking vendor, reported October year earnings of $2.8 million, or one cent. But if Brocade counted the cost of stock options, it would've shown a huge loss of $592 million, or $2.68 a share, and the trailing earnings multiple on Brocade's $30 shares would go from astronomical to incalculable. Tony Canova, Brocade's chief financial officer, says his firm's October 2001 year option awards were exceptionally large, with half issued to replace higher-priced options awarded when Brocade enjoyed a bubble market share price above 100. Brocade hired most of its employees before the stock market peaked, and Canova says Brocade issued new options in its October 2001 year to retain those workers.

Before & After
THE REACTIONARY, THE REVISIONIST AND THE UGLYYYYYYYYYY

Net Income Net Loss
(w/o cost of options) (w/ cost of options)

1999 $ 2.5M -$ 1.9M
2000 67.9M -$172.3M
2001 2.8M -$591.7M

As of 10/27/01, BRCD had total outstanding stock options of 80.7M options with a weighted average exercise price of $35.43. However, only 14.8M options with a weighted average exercise price of $33.23 were exercisable as of the end of Brocade's fiscal year. Brocade had around 222M shares outstanding as of 10/27/01 so the dilution to BRCD shareholders is considerable especially when you add the dilutive effect of the $500+M in convertible debt that is non-callable for 3 years.

Brocade insiders, however, were able to sell more than 6.1M shares during CY2001 with Reyes himself selling more than 3M shares. The joke going around in internet time is that McDATA's initial patent action signals the formal start of the sprint inside Brocade to see who can sell the most number of shares the fastest: Reyes and other insiders or their employees.<g>

biz.yahoo.com

Unfortunately for BRCD employees who still have to wait for most of their options to vest, Reyes already got off to a good start. He sold 85,600 shares as soon as the 2002 market opened despite selling more than 3M shares in 2001. I think that insider selling will continue to accelerate before key employee defections force the insiders to moderate their behavior and gut it out with their employees.

McDATA was smart to buy SANavigator since aside from providing it with a time-to-market advantage on advanced software that can manage Brocade and McDATA SANs, that Silicon Valley outpost now doubles as a recruiting outpost for disaffected Brocade employees who are now just beginning to understand the elaborate patent minefield that McDATA has laid out for Brocade at 2Gbps and how that is forcing BRCD's insiders to sell their shares like crazy.

To get some idea of why McDATA is playing this one very methodically, take a look at Lucent's latest patent-related moves in the iSCSI market. With the market continuing to act the way it is and Silicon Valley's cherised option programs under seige, is it any surprise that no one is in the mood for free luv.<g>

byteandswitch.com

Based on the 10K, Compaq accounted for 26% of BRCD's revenues in FY2001, or around $134M. EMC accounted for 20% ($103M) and IBM accounted for 10%.($51M) with about 35% to 40% coming from the channel. The growing tensions between Brocade and some of its biggest OEMs are well known. This patent action now gives them the excuse to cut Brocade down to very manageable size depending on what the patent law ultimately sez, of course.

Notice something else? EMC, IBM and Compaq now control more than 70% of the networked storage market. EMC, IBM and CPQ (via DEC StorageWorks) are long-time veterans of ESCON and VMS. That explains why the networked storage market is already a Big 3 market in a little over 4 years.

Just recently Dell indicated that its own storage biz is already at around $250M a quarter and that it now expects the cobranded EMC-DELL Clariion boxes to hit the $250M a quarter run rate by the end of 2002 so we'll have to wait and see if networked storage turns into a Big 4 market.

EXTERNAL RAID STORAGE
1998-2005
Gartner (1/2002)

DAS SAN NAS

1998 $21.6B $ 371M $ 349M
1999 23.2B 1.8B 579M
2000 23.1B 4.8B 1.4B

2001 18.7B 5.1B 1.6B
2002 17.5B 6.8B 1.9B
2003 15.2B 10.7B 2.7B
2004 13.4B 15.1B 3.6B
2005 11.9B 22.1B 4.8B

CAGR -11% 44% 31%