IBM to sell Cisco's storage networking switches

Ben Klayman

CHICAGO: IBM Corp. will sell data storage switches just introduced by Cisco Systems Inc. in a move to strengthen its product lineup in a rapidly growing market. IBM said that the multiyear deal is non-exclusive and that would allow it to continue selling storage networking switches made by Cisco's established rivals, Brocade Communications Systems Inc., McData Corp. and Inrange Technologies Corp.

"We think Cisco will be a significant entrant and competitor in this area," Roland Hagan, Vice President of marketing for IBM Storage Group, told Reuters in a telephone interview. "Our strategy in this space has been to partner with leading companies as part of our portfolio to deliver total, integrated solutions, from disk arrays to storage networking to servers."

Financial terms and volume requirements of the deal were not disclosed, but IBM said it expects to begin selling the first Cisco storage switches by the end of March. Cisco, which can use other resellers, said the storage network switches became available for customer testing last month.

Storage networking switches route information, allowing companies to access data from different servers and locations in their storage networks. Cisco has said that within two to three years it wants to be one of the two largest players in a market Gartner expects to grow from about $1.2 billion last year to $4.3 billion in 2006. In 2001, Brocade had the biggest market share at 59 percent, followed by McData at 29 percent, according to Gartner.

Cisco, a serious rival

"They're serious," Gartner analyst James Opfer said of Cisco's efforts. "Their product offering is good. I don't think that they're up against any huge resistance."

He pointed to Cisco's $21 billion cash pile, strong sales force and large presence with big corporate customers as advantages. Opfer expects such companies as EMC Corp. and Hewlett-Packard Co. to follow IBM in selling Cisco's storage networking products. Based in San Jose, California, Cisco said last October it would probably partner with Veritas Software Corp. and two or three other companies on data storage software.

Cisco entered the storage switch market last August when it announced it would buy privately held start-up Andiamo Systems. Cisco said then that the deal would not close until July 2004 at the latest as it waited to see how Andiamo's products sold.

Cisco also said then that the price could be as much as $2.5 billion, based on product sales and Cisco's stock price, but that would not be determined until the deal closed. One analyst valued the deal at between $300 million and $1 billion.

IBM, which sells Cisco routers, switches and other products, accounts for more than $1 billion of Cisco's annual sales. Cisco has almost two dozen customers testing its storage switches, and expects at least one third of those to deploy the products within the next two months, said Soni Jiandani, vice president of marketing for Cisco Storage Tech Group.

© Reuters