jumped into the storage-networking market last year, it scared the pants off investors in established players such as
Brocade Communications Systems
. Turns out, they didn't have to worry so much.
After seven quarters in the storage business, Cisco has only managed to corral a market share of about 13.6%, said Punk Ziegel analyst Steve Berg. In fact, the company's performance in storage has been so disappointing that Berg thinks Cisco could exit the business or, more likely, buy market share in the form of an acquisition.
How far behind is Cisco? Although the company no longer breaks out revenue derived from storage networking, Berg said he is able to derive it by combining publicly available market share data and other information that Cisco does release. In its just-reported
first fiscal quarter, Cisco posted storage sales of $39.8 million, compared with an estimated $100 million for McData and $153 million for Brocade. (Actual sales by the two smaller companies were a bit less in the previous quarter.)
While Cisco hasn't done well in storage, its lack of success is hardly more than a blip for a company that posted sales of nearly $6 billion in the first quarter.
According to Berg, Cisco's difficulties in storage stem from the company's inability to master a new distribution channel. With the exception of some consumer items, the company sells nearly all of its products directly to buyers. But Cisco decided to sell its storage gear via OEMs such as
, which in turn resell the product to corporate buyers under their own label. (Punk Zeigler does not do banking with Cisco.)
Although Cisco hasn't done well in the market, it has had one effect on it: driving prices down, to the detriment of other players.
With the benefit of hindsight, it's clear Cisco underestimated the difficulty of playing in the storage market, even before it stumbled in the channel.
Unlike servers or PCs, storage-network switches are still far from becoming plug-and-play commodities. A high-end switch, also called a director, is an extremely complex piece of hardware that sells for well over $100,000.
Put simply, the switches direct traffic on storage area networks, or SANs, themselves a relatively new technology that allows massive amounts of data to be stored -- and accessed -- on dedicated networks, thus unburdening the data network.
Although Cisco is highly regarded for its networking technology, it has yet to convince the market that its storage gear is as solid as the competition's. And until it does, few businesses are likely to trust their precious data to Cisco.
In recent trading, shares of Cisco, which has been hammered since issuing disappointing first-quarter results, were off $1.31, or 6.6%, to $18.44. McData was off 20 cents, or 3.2%, to $6.04 a share; while Brocade gained 15 cents, or 2.2%, to $6.87 a share.