According to the latest report from Dell'Oro, released March 19, Cisco is gaining share on Brocade for the second quarter in a row. "Three quarters in a row, and you've got a trend," said Tam Dell'Oro, founder and president of the Dell'Oro Group.
The report states Cisco earned $128 million in worldwide revenue for SAN switches, which includes directors and fabric switches, in the fourth calendar quarter of 2006, picking up six percentage points in director market share and four percentage points in the overall SAN switch market, from the previous quarter. Meanwhile, McData Corp. went from $96.9 million to $90 million losing six points of share from the third quarter to the fourth quarter. If Dell'Oro is correct, this means that Brocade, which acquired McData in the summer of 2006, lost those six points of share to Cisco instead of picking them up for itself. [Ed note: Ouch!]
At the center of the confusion is how both companies report their results, in fiscal quarters, versus the Dell'Oro numbers, which are in calendar quarters. For this reason, Dell'Oro noted that the market should not draw conclusions from one quarter. She points out that since 2004, Brocade has in fact gained five percentage points of overall share while Cisco has picked up three points.
"Cisco gives us detailed guidance on their performance ending in December, but Brocade and McData do not give us that much detail into whether they had a linear quarter or not." She said it's possible that Brocade/McData did not have a linear quarter, but Dell'Oro is assuming in its report that it did. "We've used the same process for 20 quarters in a row, and it has been accurate," she said. "But technically, we are not comparing a precise Brocade number to a Cisco number."
Buiocchi at Brocade argues that he can't disclose more guidance because this market segment is "100% of Brocade's business … it would be material to our business to give guidance." Cisco, on the other hand, does not break out its SAN storage numbers in its earnings reports, which account for less than 1% of its total business, suggesting it is arriving at a number without explaining or standing by it. Buiocchi said he believes Cisco actually earned approximately $105 million for the calendar fourth quarter 2006, not $128 million. "We just want the right information in the market," he said.
A source close to Cisco said that it would lose all credibility if the numbers it gave to Dell'Oro were not correct. Apparently, Cisco is looking at trying to break out these numbers in future earnings reports. [Ed note: Transparency! What a good idea!].
The fire storm over these numbers is happening for a couple of reasons. Perception counts for a lot in the market among users, and Brocade's sales people will have to answer questions about this report. And secondly, this is the first quarter of market share data since the merger closed. "It's a very heated quarter -- the situation will not be lost on shareholders," Dell'Oro said.
If Cisco is gaining share ...
According to Dell'Oro, Cisco is benefiting from two full quarters shipping its 4 Gbps Fibre Channel director and traditionally it has a strong end of year. "Government is typically strong and larger enterprises come in quite strong at this time of year. They are likely benefiting from their overall enterprise business," Dell'Oro said, adding that there are also some McData customers who are shifting over to Cisco in the wake of the merger.
Cisco has been conducting aggressive advertising and marketing campaigns since the merger, winning over users who have felt vulnerable and confused in the face of the two companies coming together. "We spent aggressively to capture that," a source close to Cisco said.
This heightened competition is bringing about an important advantage for users: lower pricing. Per port price erosion is twice the usual quarterly rate, according to Dell'Oro. The analyst firm said that Cisco's prices dropped eight percentage points to $570 per port from the third quarter to the fourth quarter of 2006, while Brocade's dropped nine percentage points to $520 per port.