Cisco switch price cuts a bad sign – Analyst
No love for MDS
A pair of recent price cuts for Cisco storage switches have one analyst questioning how successful the networking giant can be in the high-end storage market.
Merrill Lynch's John Roy has issued a series of notes over the last three weeks, suggesting that demand for Cisco's MDS switches is tepid at best. He cites Hewlett-Packard and IBM's recent price cuts on the Cisco gear by as much as 30 percent as one indication the kit is not selling particularly well. This could be a cause for concern in the short and long term.
"We believe the Cisco switches have yet to gain the trust of storage managers," Roy wrote in a recent note. "While price cuts could push some fence sitting prospects to Cisco, we believe Brocade's and McData's installed base will not mix vendors. The risk involved is too big and the total cost of operating a multi-vendor SAN is significantly higher."
This is what is known as a barrier to entry. The barrier is so high that Roy wonders why Cisco even wants a piece of the $1.2 billion SAN switch market - uh hem, 20 percent growth aside.
Cisco may well be interested in switches because it sees many server-type tasks moving onto networking gear down the line.
"Intelligent switches could be the next 'server,'" Roy writes. "The server being where applications run, storage applications (like EMC's AutoIS) in this case. In this way, Cisco would be stealing CPU cycles from Sun, IBM and HP."
We discussed this theory yesterday with Brocade officials, and, for obvious reasons, they claimed storage and server vendors will each have their place in the data center.
This claim could hold true, but Brocade's public posturing is directed more at keeping its OEMs such as IBM and HP sweet. The ever-increasing importance of storage systems does have server vendors a bit nervous.
It's unclear as to what type of hardware will handle functions such as provisioning, TCP/IP acceleration and encryption down the road. Sun has prepped ASICs for upcoming server processors to handle TCP/IP tasks, encryption and a slew of other functions. The storage equipment makers are dong the same thing but are putting the intelligence in their switches instead of servers.
It's likely that both storage and server vendors will be able to help users out, just in different parts of the data center. Still, the importance of this battle and potential ramifications should not be underestimated. There's a big fight on to own as much of a customer's data center as possible, and everyone wants to come out a winner.
If Cisco wants to be involved in the war, it will need to get its act together, according to Merrill.
"We believe Brocade's Rhapsody-based intelligent switches are ahead of Cisco's," Roy wrote. "Cisco needs to move slowly into the Fibre Channel switch market, lest it get a bad reputation in the storage community. A bad reputation in storage can difficult to repair, just ask Sun, which is now selling HDS boxes." ®
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