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Brocade sees slowdown in convergence demand

After buying Foundry, Brocade has an Ethernet platform to go with its Fibre Channel base but finds customers aren't demanding FC-Ethernet convergence.

Brocade executives say their acquisition of Ethernet vendor Foundry Networks hasn't changed the vendor's timeline for delivering converged network products.

Brocade has been less bullish over the timing of the implementation of convergence technologies such as enhanced Ethernet and Fibre Channel over Ethernet (FCoE) than its main rival Cisco. And while other vendors such as Emulex and Mellanox are talking about cost savings pushing up the adoption of converged networks, Brocade sees shirnking budgets due to current economic conditions delaying their implementation.

During Brodcade's earnings conference call Thursday, CEO Mike Klayko said FCoE will cost twice as much as traditional Fibre Channel products in the near term. "Customers who are focused on reducing costs are backing away from this design," he said. "We have customers asking us to commit to our technology for at least the next two product cycles to ensure the longevity of their next-generation data centers."

Brocade has made a serious commitment to Ethernet in recent months. It paid $2.6 billion for Foundry and brought in two top executives -- CTO Dave Stevens and SVP of products Marc Randall – from the networking world. But Brocade leadership says its commitment to FC hasn't waned.

Brocade CTO Dave Stevens told that Brocade remains focused on developing 16 Gbps FC and beyond as well as future generations of Ethernet.

"You'll see continued development on the Fibre Channel side, bringing performance higher, taking it to 16 gig and beyond," Stevens said. "And we'll roll that technology into embedded switches for blade servers, into HBAs, and mezzanine cards for blade servers. On the IP side, we'll continue to extend Ethernet technologies to drive 10-gigabit density higher and move to 40-gig and 100-gig Ethernet."

Converged Ethernet and FCoE are on a third track, which Stevens said will roll out when customers are ready.

"We don't subscribe to the immediate need for a unified transport in the data center like other vendors do," Stevens said.

Financial analyst Kaushik Roy of Pacific Growth Equities suggests Brocade will benefit from a delay in FCoE implementation.

More on data center storage
Brocade, Cisco expand data center platforms 

Mellanox builds bridge to consolidation 

Emulex focuses on 'convergenomics'

Bullish Cisco predicts FCoE arrays in 2009

"Brocade has roughly 70% market share in the switching market, and the further the FCoE adoption is pushed out, the more Brocade benefits from its dominant position in the [Fibre Channel] market," Roy wrote in a note to clients.

Conversely, Brocade could cede the market to Cisco if it misreads customer demand for FCoE. While Brocade has been ahead of Cisco with FC upgrades to 4-gig and 8-gig, Cisco has already launched a Nexus platform that supports FCoE. Stevens said large Brocade customers are running FCoE trials and it will probably deliver products in the second half of this year.

"Given the current economic state, we've seen a slowdown of people wanting to trial it," he said. "The timeline is pushing out beyond where it was last year. If you have limited budget, you don't spend it trying out new technologies."

Like other storage vendors, Brocade saw the negative effects of shrinking budgets last quarter. Its revenue of $431.6 million fell $10 million below the consensus forecast of analysts, and storage product revenue grew only 5% over last year and decreased 7% from the previous quarter. Brocade forecasts spending to remain lower than usual throughout this year before coming back in 2010.

The company lost $26 million in the quarter, due largely to cost of the Foundry deal and legal fees.


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