*Extra* The Game Doesn't Go Ancor's Way, So Ancor Changes It

When I first saw the news that Ancor Communications (ANCR) had struck a deal with Intel (INTC) to develop new switches based on a new type of architecture called InfiniBand, it was pretty clear that in the short term, at least, it was game over for the short-sellers. (So much for my prediction on the TSC show on Fox News Channel that the new spelling of Ancor should be A-n-c-h-o-r.) Then, after reading the company's press release and a subsequent report by chief table-pounder Ashok Kumar from Piper Jaffray, I realized that the reason so many Ancor-anatics have been so revved up over this company no longer existed.

Ancor, you may recall, has been in a bitter battle with industry leader Brocade (BRCD) in the market for fiber channel networking switches. Ancor-anatics sent themselves into a near frenzy several months ago over news that Sun Microsystems (SUNW) had agreed to buy switches from Ancor. That created a wave of rumors that Ancor was about to win every other major switch order out there, and that it deserved to trade at Brocade's $7.4 billion market cap. (Ancor's market cap is about $2.1 billion. Never mind that some think the share price of Brocade, itself, is lost in space.)

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However, as for the Sun biz -- which had been expected to materialize in the fourth quarter -- even Ancor has said it isn't sure how much, if any, biz there will be. Sun then said it expected to start shipping products with Ancor switches sometime in the first half of this year. Then came a report by tech guru George Gilder, suggesting that the fiber channel switch market was (and I'm paraphrasing) a fad.

That was followed by a report from Kumar -- who isn't afraid to stick his neck into controversy -- with a counter to Gilder's report; he pretty much called it bunk. But he also added to confusion about the status of the almighty Sun biz with Ancor by saying: "Short-term, the biggest problem for Ancor is for Sun Microsystems to get its act together. The issues converge around implementing the right adapter board." (That was the first time anybody associated with Ancor, on the bullish side, suggested there was trouble with Sun.)

Which brings us to today's announcement, which includes a $14.8 million investment in Ancor by Intel. Any investment in a company by Intel is good news from a stock-spinning standpoint. But the part of this story that is most telling is Kumar's next-to-last sentence in a report this morning to clients. (Notice how they always hold the best stuff till last?) "Due to its late start in the FC switch market," he wrote, "Ancor ceded dominant share to Brocade."

In other words, Ancor ain't about to knock Brocade off its block anytime soon.

Instead, there's a new spin tied to a new technology, which, according to Kumar, won't generate any products for two years, at the earliest. That means two years of speculation, two years of hype and two years of message-board mania. (Does Rambus (RMBS) ring a bell?) Oh, and did I mention that Ancor's deal with Intel is one of many out of Intel's $4.8 billion venture fund? And, oh, did I mention that Intel paid just $52.86 for the shares? (This morning, Ancor is trading up about 17 at about 80.) And, oh, did I tell you the deal isn't exclusive?

Oh, and by the way, did I tell you that a source close to Brocade told me today that Intel approached Brocade a year ago in its efforts to develop its own proprietary technology in this area, but Brocade decided to focus on fiber channel. "We decided to take a wait-and-see attitude because we're not convinced InfiniBand will make it," the source said. This morning, an analyst at SG Cowen said he believes Brocade will participate in the InfiniBand market. To which our Brocade source says, "Assuming there even is a market."

Reality is that -- in this world of pump and dump, and Cramer's Red Hots -- such facts don't and won't matter. Or at least they won't until they will. Fighting such fluff is futile.

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