The pending acquisition of McData by Brocade Communications Systems has the potential to create a SAN infrastructure powerhouse better able to fend off moves into the market by Cisco Systems, according to solution providers
The $713 million acquisition, unveiled Tuesday, brings together two of the four primary vendors of Fibre Channel switches and directors, leaving San Jose, Calif.-based Brocade facing a handful of competitors including San Jose-based Cisco; Aliso Viejo, Calif.-based QLogic; and Costa Mesa, Calif.-based Emulex.
Once the deal is completed, expected by January, the new Brocade will have a market share of roughly 70 percent, according to Robert W. Baird, a Milwaukee, Wisc.-based financial analyst firm.
In a report on the acquisition, Daniel Renouard, an analyst at Robert W. Baird, said that he expects some revenue attrition at McData because of the Brocade move, but it might not be significant given McData's loyal customer base and the cost to customers of switching vendors.
For solution providers, the acquisition gives them a vendor better able to compete against Cisco, which in the last few years has made a big push into the storage market.
"With the deal, Brocade now has a broad product line to combat Cisco from the low-end to the high-end of the switch business and all the directors in between," said Mark Teter, CTO of Advanced Systems Group, a Denver-based solution provider.
Rich Baldwin, president of San Diego-based solution provider Nth Generation, said he is excited by the acquisition.
"Cisco has been pushing to get into this market, but now Brocade is in a stronger position," Baldwin said. "I've been seeing a lot of positives this year working with Brocade. We've been winning a lot of deals against Cisco, and a few against McData. There will be market consolidation, but that leaves Brocade a stronger company."
Dan Carson, vice president of marketing and business development at Open Systems Solutions, a Willow Grove, Penn.-based solution provider, said it is interesting that Cisco didn't acquire Brocade or McData. "But then Cisco probably had to stay out of [the competition]," Carson said. "There are only four manufacturers, so there were probably regulatory considerations."
For now, Open Systems Solutions, which does roughly equal business with both Brocade and McData, is waiting for Brocade to come in and discuss transition and on-going support issues, Carson said.
While the $713 million price tag may seem high, Carson said, McData does bring to Brocade new high-end technology in the Fibre Channel-to-IP and Wide Area File Services (WAFS) space.
"Our big customers are asking about WAFS," Carson said. "One of the biggest challenges to data consolidation or data replication is latency in long-distance networking. With WAFS, customers can get access to remote data almost as quickly as if it was local."
While many in the industry talk about product overlap between Brocade and McData, McData actually brings a number of other advantages, including services, and long distance storage networking technology, and mainframe connectivity, said Tom Buiocchi, Brocade's marketing vice president.
While the two companies have not yet started integrating their product lines, Buiocchi said he expects moves toward converging on a common platform to start with the arrival of the next generation 8-Gbps Fibre Channel technology. Buiocchi could not say when that might happen, but he said such a technology refresh takes place every three to four years, and the latest technology, 4-Gbps Fibre Channel, started shipping in late 2004.
While the bulk of both companies' products are sold through the indirect and direct channels of OEMs such as EMC, Hewlett-Packard, IBM, and Sun Microsystems, Brocade and McData have also seen their sales directly to the channel grow quickly in the last couple years, a move Buiocchi expects to continue.