Like Cisco, Brocade Falls Short

Cisco’s Q4 sales fell short last week and Brocade followed suit with its Q3 earnings, missing analyst forecasts and lowering its revenue expectations for its fiscal year. But why?

Some industry insiders think customers are biding their time as they watch how the whole converged networking/unified fabric push plays out.

In a statement regarding Brocade’s (NASDAQ: BRCD) earnings, CEO Michael Klayko said, “Q3 was another solid quarter for Brocade in which we achieved better-than-expected results from our storage area networking business and continued to make progress in our Ethernet go-to-market initiatives. As we look to Q4, we expect a strong finish to our fiscal 2010. Despite operating in a challenging global economy with variable IT spending patterns, we are confident that our sales and marketing strategies as well as our product portfolio are aligned well with customer imperatives.”

Cisco’s (NASDAQ: CSCO) CEO John Chambers also cited uncertainty in the economy as well asmixed signals in the market and customer expectations as the reason for Cisco’s Q4 sales miss. However, Chambers said he’s confident that Cisco will succeed by continuing to “aggressively move into new areas where the network is becoming the platform.”

Brocade’s Numbers:

- Q3 revenue was $504 million, increasing approximately 1% sequentially and 2% year-over-year.

- Q3 GAAP EPS (diluted) was $0.05, sequentially level, and increasing from a loss in Q3 2009.

- Q3 non-GAAP EPS (diluted) was $0.13, sequentially level, and increasing 8% year-over-year.

- Q3 non-GAAP operating margin was 17.3% versus 20.5% in Q2 2010 and 20.3% in Q3 2009.

- Q3 effective GAAP tax rate was (220)%; non-GAAP effective tax rate was 0.2%.

- Q3 Adj. EBITDA was $102 million, down from $116 million in Q2 2010 and $119 million in Q3 2009.

- Q3 total Storage Area Networking (SAN) port shipments were approximately 1.0 million.

For the full Q3 financial results, including prepared comments from Brocade executives, go to http://www.brcd.com.

For more earnings news, check out Dave Simpson’s blog on NetApp’s Q1 bonanza.

EMC, Cisco, Vmware cause waves with cloud coalition

November 3, 2009 -- Competitors are already calling the EMC – Cisco – VMware Virtual Computing Environment coalition and its Vblock compute systems a veiled approach to vendor lock-in, but the trio begs to differ.

EMC, Cisco and VMware caused a commotion when the companies announced the Virtual Computing Environment (VCE) coalition and a new set of systems that operate as building blocks for virtualized cloud computing infrastructures.

The companies have been collaborating to create a virtualized, cloud infrastructure platform based on their respective technologies. The result is a series of integrated "Vblock Infrastructure" packages comprised of storage and networking systems and server and storage virtualization software.

We've been fielding comments from across the industry and it didn't take long for the competition to react.

EMC rival NetApp fired a shot at the VCE by classifying Vblocks as nothing more than a reference architecture rather than a full stack of server, network, storage, and virtualization technologies.

Jay Kidd, vice president Storage Solutions group and chief marketing officer, NetApp:

"We view today's announcement as a clever attempt by Cisco to sell UCS servers into EMC's install base. We also feel that this announcement further validates the trend that we're seeing as more and more enterprises move to a virtualized dynamic data center infrastructure. NetApp has been at the forefront in helping enterprises realize this shift through our close partnerships with Cisco and VMware. With VMware we have virtualized large data centers for customers like T-Systems, BT, and Sprint, and have expanded on these architectures with several integration partners to include Cisco UCS servers. Open partnerships, not closed coalitions, are what customers need and want to make the transformation to a virtualized data center."

More of Jay's thoughts on the VCE and Vblocks can be found in his latest blog post.

Dell – a huge EMC partner – calls the VCE/Vblock news an attempt to lock users into proprietary technologies.

Dell's vice president of enterprise storage and networking, Praveen Asthana, says, "The VMware, Cisco and EMC joint venture assumes that customers are looking for closed technology architectures that lock them into a restricted vendor stack. This proprietary implementation of industry standard architectures is a throwback to the 1990's and creates complete vendor lock-in. As the leading provider of Cloud infrastructure, Dell knows from its customers' insights that cloud compute workloads are best served by open, standards-based solutions – not by repackaging high-cost infrastructure as a cloud solution."

The coalition members beg to differ. They are in lock step with a message of openness.

VMware's president and CEO, Paul Maritz, says Cisco, EMC and VMware all remain committed to working in an "open way."

"We maintain our commitment to working in an open way with existing partners by making our technologies available to other parties who want to put together solutions," says Maritz. "There is no need or reason for our relationships to change. At the same time, we are adding to the options for our customers and not removing them."

EMC's CEO Joe Tucci claims the VCE and the Vblock systems offer customers more "choice."

"On the choice side, we know this is an open world and we are committed to openness," he says. "We are still offering an a la carte menu. For example, you can take EMC storage and choose another server. We are not removing choice."

However, open does not mean the ability to use just any technology to create a Vblock.

"We are not substituting on the Vblock side. If you want to use somebody else's storage you have to buy from the [a la carte] side of the menu, but you're not buying a Vblock," says Tucci. "That's the distinction. You give up certain things if you don't order from the fixed menu."

Cisco's UCS: The industry reacts

March 24, 2009 -- The IT world has had about a week to digest, mull and question the ins-and-outs of Cisco's newly announced "game-changer," the Unified Computing System. And the industry certainly has questions for Cisco.

Several competitors are questioning whether Cisco's UCS – the platform that combines compute, network, storage access, and virtualization resources in a single system based on a new line of blade servers developed by Cisco – features a truly open architecture.

Brocade's CEO Mike Klayko made his opinion known yesterday in a video posted to the Brocade YouTube Channel.

Klayko does not believe large enterprise customers will put mission critical applications on a version one product, referring to Cisco's new blade servers.

Brocade has also issued an official statement to the media in response to Cisco's UCS launch. It reads:

"A dynamic and virtualized data center holds the promise of many compelling benefits for end-users including increased server utilization, decrease in power footprint and more efficient operations in general. However, achieving this goal is a complex challenge that can be best tackled by a broad ecosystem of industry partners and not based on a proprietary, singular architecture of one company.

In contrast, Brocade is already helping customers address these challenges by integrating our networking solutions with a range of mature computing, management and storage technologies from some of the strongest companies in the world. These partnerships are leveraging open interfaces/standards, co-developed technology, and products that are available today, which will lower costs and maximize return on investment for customers."

BLADE Network Technologies president and CEO Vikram Mehta also took aim at Cisco in a recent blog entry where he lists 10 reasons why Cisco's Unified Computing strategy is nothing more than a way to lock customers into a proprietary world while locking out vendors like HP and IBM.

Cisco begs to differ. Rob Lloyd, executive vice president designate, Worldwide Operations for Cisco, explained that Cisco has "built an open ecosystem of industry leaders" in support of the UCS even going as far as to refer to UCS supporters as a "dream team of capable partners."

Cisco is collaborating with a wide range of hardware and software vendors to develop systems and applications that work with the platform. Specifically, Cisco is teaming up with technology partners BMC Software, EMC, Emulex, Intel, Microsoft, NetApp, Novell, Oracle, QLogic, Red Hat, and VMware and has expanded strategic relationships with Accenture, CSC, Tata Consultancy Services (TCS), and Wipro.

Noticeably absent from the partner list are the server vendors. However, Lloyd told media and analysts in last week's UCS conference call that Cisco does not view the UCS as a blade server.

"The UCS will be shipped and configured as a system. That's why we don't think we're competing on a blade platform, but on a new system form factor," he said.

Is 2009 the year of unified fabrics?

Tight budgets invite tough decisions. Some storage projects will undoubtedly be shelved this year as end users look to drive cost out of the data center. As a part of those consolidation efforts, network fabrics could get a makeover.

Enterprise Strategy Group (ESG) analyst Bob Laliberte believes all organizations are in uncharted economic territory and 2009 will clearly be a challenging year for IT budgets.

However, according to his research, the majority of organizations surveyed by ESG expect that their storage spending will increase slightly in 2009.

ESG estimates that storage capital spending will grow at a modest rate of 2.9% from 2008 to 2009, outpacing most expectations of overall IT spending growth. Spending increases will be centered among the largest, most data-intensive organizations and will be tied to specific business initiatives such as Web 2.0 projects, improved business intelligence, and globalization.

If the main players in the push for unified networking technologies are to be believed, the economic climate creates a big opportunity for unified networking technologies. Both Brocade and Cisco say they are seeing success with their newest products as users are well on their way to adopting the core platforms necessary for supporting the unified fabrics of the future.

"Our DCX Backbone is the fastest ramping and most widely successful product line we've ever had," said Brocade's senior director of product marketing, Marty Lans.

Though Brocade doesn't break out specific numbers for public consumption, the company cites internal metrics and general market acceptance as the measure of success for the DCX. The company bases its claims on the number of units shipped and port density.

Cisco is also enjoying success as it positions the capabilities of its Nexus platform as necessary for virtual data centers.

"The implementation of a unified fabric infrastructure allows for combining storage and data traffic on a single, unified Ethernet network. As virtualization becomes a stronger design influence in the data center, these features become a requirement to support virtual environments," said Cisco's Dante Malagrino, director of product marketing for data center emerging technology.

Cisco touts more than 250 customers for its new flagship product, the Nexus 7000, which began shipping in January of 2008.

According to Laliberte, server virtualization is also driving the need for faster, more advanced storage networking technologies.

"Our research indicates that all networked storage is increasing, Fibre Channel SAN, iSCSI SAN and NAS. With multiple virtual machines there is a need for additional throughput," he said.

Laliberte thinks the concept of consolidated fabrics will continue to gain acceptance this year.

"As long as organizations continue to consolidate data centers and infrastructure – the ability to consolidate FC directors onto a backbone should resonate – saves on power, cooling and space and the new virtual fabric technology ensures secure segmentation of the SAN," he said.