Cisco's storage biz falls short of $20m aim

CHICAGO: Cisco Systems Inc.,maker of equipment that directs Internet traffic, fell well short of its quarterly goal in its storage networking business, hampering its plans to move quickly to dominate that market. >However, analysts and investors said the company remains a threat to market giants Brocade Communications Systems Inc. and McData Corp.

Cisco on Tuesday, reported fiscal fourth-quarter results and said sales in its storage networking business rose 45 percent from the previous quarter, to about $14.5 million.

While that was strong growth for a tiny unit Cisco had identified as a potential billion-dollar business, it was well short of Chief Executive John Chamber's target to double sales to $20 million.

"Any time I set a goal, I like to meet it," Chambers told Reuters in a telephone interview late Tuesday. "By the same token, we've said there are six advanced technologies, you will see them up and down in given quarters."

He said Cisco will have a better idea of its progress in the storage networking sector in the fall or early winter. However, analysts said growth is sufficient for Cisco to achieve its goals.

The storage switch market is expected to grow more than 150 percent to $2.2 billion in 2007 from $856 million last year, according to market research firm IDC. Last year, Brocade and McData had market shares of about 55 percent and 30 percent, respectively.

Cisco entered the storage networking market last year with grand plans to be one of the two largest players within three to five years. Analysts and investors said rivals doubt the newcomer at their own risk.

"It's just a matter of time before Cisco is the No. 1 or No. 2 player in the segment," said Phil Lorenz, analyst with Northern Trust Corp.'s asset management arm, which is one of Cisco's largest shareholders. He said while sales did not meet expectations, units sold did.

Cisco also sports another advantage, thanks to its dominance in the data networking sector.

Storage networking is one of the advanced technologies Cisco has identified as a growing market in which it wants to be a major player. Cisco entered the market last August when it said it would buy Andiamo for as much as $2.5 billion in a deal that will close no later than July 2004.

San Jose, California-based Cisco has seen some early success, boosting its customer count by 100 in the latest quarter to 140 and achieving distribution through the largest sellers of storage networking switches -EMC Corp., IBM, Hewlett-Packard Co. and Hitachi Data Systems.

However, fierce competition and a desire to establish its market position forced Cisco to alter plans.

"I didn't anticipate a 30 to 35 (percent) price decrease occurring during this quarter," Chambers said. "We had intended to drop the prices at a later date."

He said customer growth was better than expected, but the price declines made Cisco's targets hard to reach. Northern Trust's Lorenz said prices typically drop 15 percent to 20 percent per year, and what Cisco saw in one quarter was very steep and does not bode well for Brocade or McData.

Customers welcome anything that means lower prices, said Paul Ross, EMC's director of storage network marketing. EMC started selling Cisco's storage switches in the second quarter, alongside Brocade and McData's products.

"It's a very competitive market for Cisco to enter," Ross said. "They certainly have a little challenge ahead."

© Reuters