Cisco says the dropoff in its FibreChannel SAN revenue and market share in Q1 is attributable to three factors: an early stage migration to 8Gbps; a lower cost migration than rival Brocade; and exposure to financial buyers, which is hard hit by the recession.
Cisco lost almost 10 percentage points in overall SAN market share in Q1 while Brocade, its SAN rival, gained 14 percentage points in modular switches and almost four in fixed, according to Dell'Oro Group. Sales declined by a whopping 45% in Q1 compared to Q4, while Brocade's only slid 6%.
Moreover, the average per port sales price of a Cisco high-end MDS 9500 modular SAN switch dropped 16%, according to Dell'Oro, which noted that typical quarterly price erosion on the platform had been in the low single digits.
Cisco says the Q1 slide is because Brocade got a head-start on the company in migrating users to 8Gbps FibreChannel SANs, and that Brocade has a more expensive upgrade strategy compared to Cisco's chassis investment protection approach.
"Cisco customers spend less when they upgrade," says Rajiv Ramaswami, vice president and general manager of the Data Center Switching Technology Group at Cisco, explaining the revenue shortfall and double digit drop in average selling price per port. "The reason for that is we are selling more 4G ports than Brocade. We are earlier in the migration (to 8G). What we expect to see in the next couple of quarters is (more migration to 8G) and that should benefit Cisco."
Dell'Oro stated that Cisco's decision to enter into the domain of channel partners HP and IBM with its own servers may have cut off those channels, resulting in the Q1 SAN revenue and share slide. Cisco says that is not the case.
"We are still partnering with HP and IBM on the storage side," Ravaswami says. "The Cisco/Brocade choice is dictated more by the end customer. I would not say that the bulk of the share loss this quarter was because of HP or IBM."
Analysts and other observers also note that Cisco is very bullish on propagating FCoE, which replaces a FibreChannel switching fabric with Ethernet, yet still provides FibreChannel connectivity between servers and storage arrays. The T11 working group of INCITS/ANSI just signed off on the FCoE standard June 4, Cisco officials say.
Some observers have suggested that Cisco's Q1 SAN numbers may be an indication that Cisco is cannibalizing its FibreChannel base in order to further its FCoE strategy.
"Cisco's whole motivation is getting customers to adopt Ethernet infrastructure, not Fibre Channel," says Deni Connor, principal analyst at Storage Strategies NOW. "Offering FCoE, which will ultimately allow its customers to shift from Fibre Channel to lossless Ethernet, is worth the risk of losing Fibre Channel share. You've seen Cisco do this in the past with its interest and support for iSCSI, which allows block-level storage protocols to run over Ethernet."
Cisco says it is not sacrificing FibreChannel for FCoE because the two technologies address different applications and currently cannot easily replace one another. FCoE is a server-facing technology while FibreChannel is predominantly for attachment to storage arrays, the company says, which is why no MDS customers have replaced their SAN switches with the Nexus FCoE switch.
Also, Cisco has only shipped about 5,000 FCoE ports in Q1, according to Dell'Oro, hardly enough volume to eat away tens of millions of dollars in FibreChannel business. So Cisco may not be intentionally eating its MDS young - but Nexus does represent the company's future direction in data centers.
"The MDS was generating about $100 million a quarter, but peaked in Q4 '07 and demand has somewhat softened since then," says Tam Dell'Oro, founder, president and senior analyst for SAN research at Dell'Oro Group. "I don't think cannibalizing the MDS is a deliberate move. Maybe the attention and investment has shifted to the Nexus. If you had to prioritize...you'd allocate the most to the product that had the highest income capability."
And FCoE is "not cheap," Dell'Oro says - adding the capability to the Nexus 5000 switch can add over $1,000 to the per port list price of the device (which lists for $900 per 10Gbps Ethernet port).
That's not to say MDS is dying off anytime soon. Cisco says FibreChannel will be around for years to come - and Cisco plans to develop 16Gbps capabilities for the product line.
"Customers on storage side tend to be conservative, and continue to invest in FibreChannel," says Jackie Ross, vice president of marketing for Cisco's Server Access and Virtualization Group.