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Brocade still bullish on Fibre Channel, despite sales plunge

Brocade executives said they expect the Fibre Channel (FC) SAN slump to be temporary and predict a rebound in the second half of the year.

As Brocade announced earlier this month, its FC SAN switching last quarter was lower than its previous forecast. It came in at $319 million, down seven percent from last year and down 12 percent from the previous quarter. Brocade executives said on their earnings call last night the slowdown was due to lower than expected storage sales from its OEM partners, such as EMC, IBM and Dell.

“We were disappointed in our SAN sales due to short-term slowing in the storage market,” Brocade CEO Lloyd Carney said.

The SAN business doesn’t look much better this quarter, as Brocade expects it to decline from eight percent to 11 percent from last quarter. “Demand signals for storage remains soft,” Brocade CFO Dan Fairfax said.

Carney added that Brocade’s storage partners expect sales to rebound in the second half of the year, and the company remains optimistic about Fibre Channel.

“We fully believe at the end of the year, the SAN business will rebound,” he said.

Carney said Brocade plans to cut $100 million in spending over the next year, and some projects will be discontinued. But he said Brocade will remain focused on FC SANs, Ethernet networking and the emerging software-defined networking markets.

“We believe that the fundamentals of the SAN market are strong, including storage growth related to virtualization, cloud and unstructured data,” Carney said.

Jason Nolet, VP of Brocade’s data center networking group, said the factors favoring FC include the rise of flash in network storage.

“Flash needs a network that is a very low latency, very high IOPS, very high bandwidth, and Fibre Channel is the perfect match for that,” he said. “That’s why you see all the flash vendors, whether they are startups or established vendors, with Fibre Channel connectivity on their flash arrays. So we think the fundamentals in the storage industry and the basic requirements for customers continue to favor Fibre Channel. So we’re bullish for that reason.”

Nolet said he was certain that slow FC sales were not due to customers converting to converged Fibre Channel over Ethernet (FCoE) networks in place of FC.

“The customer base has largely spoken, and end-to-end convergence on a technology like FCoE is not on their agenda,” he said. “We see a little bit of convergence from the server to the first hop in the network, and then Fibre Channel gets broken out natively and Ethernet natively as well. But this [revenue decline] is not a function of FCoE growth.”

Brocade reported most of its SAN revenue last quarter came from 16-Gbps FC, which it has been selling for a year.

Nolet said Cisco’s recent rollout of 16-Gbps FC products underscores the importance of FC, but he dismissed the Cisco devices as “largely focused on speeds and feeds and lacking the innovation that we delivered” when Brocade first went to 16-gig.

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