Tom Petrocelli's take on technology. Tom is the author of the book "Data Protection and Information Lifecycle Management" and a natural technology curmudgeon. This blog represents only my own views and not those of my employer, Enterprise Strategy Group. Frankly, mine are more amusing.

Friday, August 18, 2006

Fibre Channel Switches - The Ranks Are Getting Thin!

Now that Brocade is buying McData (which bought CNT some time ago) the number of FC switch vendors is getting to be quite small. Three to be exact. Once the deal closes, all that will be left is Brocade, Cisco, and QLogic. Sure, there are some smaller players that will insist they are FC switch vendors but they really are iSCSI switch makers with a bit of Fibre Channel tossed in. None of them make the range of product that the FC Three do nor do they make director grade switches. Everyone else, including the big storage vendors, buy from these three companies.

Is this good? I always feel that more competition is better. It drives innovation and lower cost. From the point of view of the eventual consumer (mainly IT shops) this is a bad thing. With fewer vendors selling FC Switches, prices may rise and product development slow. Costs more, less filling. I can only imagine that the arrogance factor will increase a bit too.

From a product perspective this isn't a happy place either. Both companies have almost total overlap of products including directors, mid-level switches, and small switches. You could pick through the products and find small differences but nothing that will give the combined company a huge competitive advantage. Fewer overall product choices for consumers is not good and it raises the risk of technology monoculture issues. With so much of the market concentrated in one company - Brocade - the chance of a bug effecting a large number of companies is one that needs consideration.

Which brings us to the "why". Where is the value of the merger or acquisition? Truthfully, Brocade gets nothing dramatic from McData. Granted, many feel that the Brocade director is not nearly as good as the McData one. McData also has some pretty good mainframe connectivity capabilities, mostly ESCON and FICON. That's not the biggest chunk of the market, so it's not enough to buy a company the size of McData. Perhaps, the reason is that they got all excited at prospect of swinging to a profit that simply had to go out and spend that money! Woo hoo! Keep these guys away from the Home Shopping Network.

The best reasons for Brocade to do the deal are to eliminate a competitor that sometimes gives it fits in certain accounts (such as EMC) and to bulk up. That suggests that Cisco is hurting both companies. With it's breadth of products, enormous, well developed, channel, and shear scale, Cisco is pushing these guys around a bit. Or at least scaring them. That makes this look like a defensive move rather than a strategic one.

Maybe the deal makes sense financially. I'll leave that to the stock analysts. Investors seem to be voting this one with their feet. Brocade's stock plunged right after the announcement and hasn't recovered despite a good earnings announcement. That's confidence for you. While I don't think customers will like it in the long run, Cisco will likely approve. It gives them one less target to worry about. They can now focus on crushing only one competitor. Sweet for them but not for the rest of the industry or IT consumers.

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