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Issue Date: August 2007

Cisco launches BEE initiative

31 August 2007

According to Dell'Oro's numbers - which are based on data supplied to it by vendors themselves - Cisco Systems bumped up its second calendar quarter revenue share up to 30%.
That is up from 27% in the first quarter, and from 21% in the first quarter of 2006, according to Dell'Oro.
That left Brocade Communications Systems with 66% of total SAN switch and director market revenue in the second quarter. Third-placed QLogic continue to grow its SAN switching business but still only has around 5% share.
Brocade said however that according to Dell'Oro's figures its share of the market in terms of total port shipments has been unchanged from the first half of 2006 to the first half of this year - when McData's shipments of last year are added to its own. Brocade merged with McData in January this year.
The total market grew strongly during the second quarter, and was up 11% both year-on-year and sequentially at $430m.
Cisco's gains continue to be at the high end of the market, selling modular SAN directors. The networking giant claimed that according to Dell'Oro's numbers for this sector it is now the largest supplier in that sector in terms of revenue, while Brocade continues to be number one in terms of port shipments.
The networking giant's revenue from the sale of less expensive fixed chassis switches has changed little over the last dozen or so quarters, and has been around only $15m to $20m, or less than 10%, Dell'Oro said.
Dell'Oro's numbers are based on data given to it by vendors themselves. The researcher's founder Tam Dell'Oro said that sometimes vendors are only able to give revenue and shipment numbers for periods that match their internal accounting systems, which may not have the same start and finish dates as calendar quarters.
Because a rush of sales orders can often occur at the end of a quarter or period, that can sometimes result in Dell'Oro's numbers being slightly adrift. But according to Dell'Oro, these effects are balanced out over multiple quarters.
Our view
There are two important things to remember when watching the Cisco-Brocade struggle.
The first is that Brocade declared that it could lose up to 30% of McData's customers post-merger and still profit from the acquisition.
The second is that - courtesy of its director sales - Cisco's market share has been climbing fairly steadily since it entered the SAN switching market in 2002.
Before the Brocade-McData merger there was no sign of Cisco's growth tapering off, and there is no strong reason why it should taper off post-merger. In fact the merger and its unnerving effect on users gave Cisco an even bigger opportunity to poach business from McData, which had already been the biggest source of customers for Cisco.
Brocade says that some former McData customers are now delaying their purchases in the confidence that Brocade will keep its promise to soon deliver a converged Brocade-McData director. But why would they wait for that device? Brocade has also promised that everything it ships post-merger will be both forwards and backwards compatible.
Perhaps those customers have not delayed their purchases, but have actually switched to Cisco.
Note also that if Brocade is losing revenue share but holding port share, it must be lowering its average selling price. It is an unpleasant fact of life for Brocade that it will continue to cede market share to Cisco. The $64m question is how much?
Source: Computergram


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