Brocade gearing up to fight 'Cisco fatigue'

Brocade told analysts its Foundry acquisition will make it uniquely equipped to battle Cisco.

Brocade Communications Systems is painting itself as the alternative to Cisco Systems that IT administrators have been looking for.

With its acquisition of Ethernet vendor Foundry Networks expected to close by year's end, the storage networking company will have products for everything from data centers to the Internet, easing "Cisco fatigue," executives said Wednesday at an analyst conference. Brocade will be the only other company that can offer connectivity on both sides of servers, to the LAN and the storage network, they said.

Brocade is better able than Cisco to cooperate with key system vendors such as IBM, Hewlett-Packard and EMC because of its deep, longtime relationships with those companies, said T.J. Grewal, vice president of corporate development. Interoperability with other vendors' products will be critical as enterprises ease into transformations of their data centers. Recent moves by Cisco make it look more like a competitor of the system vendors, he said. Cisco has been pushing to put more of the intelligence of data centers in the network infrastructure.

"There's a sense here that there hasn't been a credible alternative to Cisco," said Ian Whiting, vice president and general manager of Brocade's Data Center Infrastructure division.

Amid falling stock markets and devastation among Wall Street investment banks, CEO Michael Klayko was asked repeatedly about the financing of the US$3 billion Foundry acquisition through Bank of America and Morgan Stanley, and finally grew testy.

"We're very confident we're going to fund this deal. ... Does anyone else want to ask this question?" he said.

The company hasn't changed its forecast for the current quarter, which called for revenue of $375 million to $385 million and earnings per share of $0.04 or $0.05, and remained optimistic about the longer-term outlook.

For its full 2008 fiscal year, ending next month, Brocade expects its revenue to grow 17 percent from fiscal 2007 and earnings per share to rise between 11 percent and 12 percent. Foundry will boost the company's profit by about 5 percent in fiscal 2009 and about 20 percent in 2010, counting savings from synergies and other adjustments, Brocade estimated.

"Our fundamentals haven't changed. Data hasn't stopped growing," Klayko said.

The two companies' technologies are complementary, Grewal said. Foundry will bring Brocade an Ethernet portfolio for LANs, complementing its Fibre Channel SAN technology. But the purchase wasn't made to help Brocade tackle the emergence of Ethernet in storage networks, he said. Brocade was already working toward that with "lossless Ethernet" technology that gives Ethernet the deterministic quality required in SANs, he said. The company has already developed its own silicon for this emerging technology and put it in the DCX Backbone multiprotocol storage switch, which will support the future Fibre Channel over Ethernet (FCoE) standard, he said.

Klayko said enterprises will move gradually to new technologies in their data centers -- an idea that serves a company founded on traditional Fibre Channel, the mainstay of SANs today.

"There are going to be multiple fabrics and protocols," Klayko said, and the needs of applications will determine which are best. Most shops aren't ready for FCoE, he said. "Having the technical capabilities and having the applications be ready to take advantage of those ... are a little out of sync," he said.

Also Wednesday, Brocade said its entry into HBAs (host bus adapters) for connecting servers to networks is on track. The company expects the HBAs it announced earlier this year to be qualified by its OEM (original equipment manufacturer) partners by the end of this year.

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Stephen Lawson

IDG News Service
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