Foundry Networks today abruptly postponed its shareholders vote on its pending acquisition by Brocade, raising questions about whether the $3 billion deal will go through.
Brocade said on July 21 it would buy Ethernet switch vendor Foundry to expand its data center presence. Foundry shareholders were scheduled to vote on the deal today, but the company issued a press release saying the meeting was pushed back to next Wednesday because of “recent developments related to the transaction.”
Foundry did not say what those developments were, and Brocade spokesman John Noh said he could not comment. In a note to his clients, financial analyst Aaron Rakers of Wachovia Capital Markets wrote that Foundry investors are worried that Brocade either hasn’t been able to raise the $400 million in funding to go with the $1.1 billion loan it secured two weeks ago, or is trying to renegotiate terms of the deal.
“It is very hard for us to judge the outcome at this point, but we do believe Brocade has been very committed to the transaction and we believe investors could have meaningful questions on Brocade’s long-term growth story without this acquisition,” Rakers wrote.
During a conference call with storage reporters today to discuss the future for data center networking, Dell senior storage manager Eric Endebrock pointed to the convergence of Ethernet and Fibre Channel as inevitable. “Change is afoot,” he said. “FCoE is a more straightforward management infrastructure–the next generation of intercommunication for Fibre Channel.”
No suprise there. Practically every FC storage vendor is saying that. But where it gets tricky with Dell is, it dropped $1.4 billion in iSCSI SAN vendor EqualLogic less than a year ago. And where EqualLogic’s PS Series iSCSI SAN arrays fit into the converged picture isn’t clear yet.
“Protocols will not necessarily be the top factor in choosing the next storage system for customers,” Endebrock said. “We get caught up in the latest cool technology trend on [the vendor and press] side, but customers don’t necessarily care about that.” He added that lossless Ethernet “will float all storage boats” and that “customers see a place for all protocols.”
Also, “linking EqualLogic to iSCSI is probably not the best way to think about it–we also provide a scaling architecture and solve higher customer needs–it’s far more than just a protocol discussion.”
So far, Dell spokespeople aren’t willing to go into further detail about what its exact plan is for EqualLogic. “We continue to investigate our options and will support 10 Gigabit Ethernet as well as Data Center Ethernet with EqualLogic. We’re going to watch our customers’ needs and what the customers want,” Endebrock said.
A presentation at Storage Networking World titled “Yes, Fibre Channel and iSCSI Can Coexist” by director of global storage and network marketing Praveen Asthana, offered some clues about how Dell sees it all fitting together. “Mixed is in,” Dell’s Asthana said. But he identified Ethernet as the glue–whether it’s providing the base layer of the unified network or providing a simple management and monitoring interface for all endpoints on an IP network.
While traditional Fibre Channel offers better performance for business applications than traditional iSCSI, it also offers better performance for streaming applications and high-performance computing (HPC) workloads, Asthana pointed out. But he also projected scale-out iSCSI, especially with 10 GbE, will surpass the performance offered by both earlier protocols.
Bottom line: Dell will support FC as long as it supports Clariion. Endebrock was mostly mum when it came to the relationship with EMC, as addressed by EMC CEO Joe Tucci in the company’s third-quarter earnings call on Wednesday. “Joe actually laid out that we have a great relationship and we’re actively working together on how to go to market on the best way possible, working on fitting our product lines together. We’re going back to basics and at the ground level refocusing on where we’ve seen success in the past.”
With the global economy crumbling, Data Domain is the rare company that not only exceeded its financial expectations for last quarter but actually raised its forecast for this quarter.
Data Domain’s third-quarter revenue of $75 million was up 134 percent from last year, and earned the company $3.2 million in net income. Data Domain expects revenue this quarter to be between $80 million to $84 million and its estimate for the full year is between $269 million and $273 million, up from the previous estimate of $250 million to $255 million.
The data dedupe specialist proved that curbing data growth is a high priority in data centers these days even if companies are looking to trim storage budgets. Quantum also cited sales of its deduplication products as a highlight in an overall disappointing quarter, and EMC execs said on their earnings call this week that their Avamar host-based dedupe is selling well although they made no mention of the re-branded Quantum products they sell.
But while Quantum, EMC and others say they saw a spending slowdown in September and October, Data Domain execs say its full speed ahead. Data Domain CEO Frank Slootman said his company’s new bigger – and more expensive – DD690 system has been well received, and customers are moving beyond just using dedupe to for backup. Slootman said Data Domain systems are increasingly being used for nearline (archive) data.
“We saw normal spending patterns and behavior, even in the last week of September when all hell was breaking loose,” Slootman said. “If you didn’t watch CNBC, you wouldn’t know something was wrong with the world.”
Data Domain reported 10 deals of more than $1 million and two of more than $5 million, and the average deal grew to $131,700 from $108,000 the previous quarter. Slootman said even financial services companies are buying “because of the much bigger faster product we’re selling.”
Quantum also has a bigger dedupe product out – the DXi750 – and CEO Rick Belluzzo said it spurred an increase in disk and software revenue despite an overall loss of $3 million due to declining tape sales.
“The DXi7500 has tended to take us into bigger accounts and bigger deals, but those become a little harder to close,” Belluzzo said. “It’s clear the global financial crisis impacted our ability to close business at end of the quarter. We saw numerous sizeable deals fall out of the quarter, particularly on the DXi7500.”
Belluzzo said he hopes most of those big deals will close, and several already have. Quantum is clearly betting its future on disk backup fueled by deduplication and replication rather than its legacy tape business. Belluzzo said the vendor is also looking for more partners to license its dedupe IP as EMC has. One financial analyst says Quantum has a deal in the works with Dell. Dell hasn’t done much with dedupe yet, but senior manager of Dell storage Erick Endebrock said on a conference call with reporters today there will be a dedup announcement “in the near future.”
Several weeks after recommending to investors that they approve a bid by a private equity company to take over the struggling maker of optical storage media, Plasmon has been bought by an unidentified U.S. firm.
As a result of the deal, which earlier reports valued at $25 million, Plasmon has become Plasmon Holdings LLC, and will move its headquarters from the U.K. to the U.S. Plasmon will continue its strategy under CEO Steven Murphy of fitting its products in to users’ overall long-term archiving strategies (bolstered by partnerships with NetApp and IBM-FileNet) rather than focusing solely on the speeds and feeds of its optical media.
Murphy has been here before. He was CEO of Softek when it spun out of Fujitsu and went private in 2004. Last year, IBM acquired Softek for an undisclosed amount, and folded Softek’s host-based Transparent Data Migration Facility (TDMF) data migration software into its IBM Global Services (IGS) division,.
The New York Times and BusinessWeek are reporting today that Sun Microsystems co-founder Andy Bechtolsheim is leaving the company (for a second time) to serve as chairman and chief development officer for a startup he funded. That company, Arista, will compete with Cisco in the 10 Gigabit Ethernet (10 GbE) and cloud computing markets. Former Cisco exec Jayshree Ullal has been recruited as Arista’s CEO.
Reached for comment, a Sun spokesperson sent the following statement today:
There have been a few inaccurate articles published regarding the status of Sun co-founder, Andy Bechtolsheim. Sun can confirm that Andy will remain with Sun to continue his present involvement with the Sun Systems group in helping to drive new product architectures, including X64 servers and storage servers, and will continue to work on key strategic initiatives such as HPC. Andy will move to part-time work status and spend the remainder of his time involved in the start-up community where he worked prior to re-joining Sun in 2004.
The Times story does note that “he said he would retain a part-time advisory role at the company. ‘It’s my baby…I will always be associated with Sun’.”
Regardless of the semantics about Bechtolsheim’s work status, the move is another blow to Sun among many recently, from declining earnings to the impairment of goodwill for its StorageTek acquisition.
Although EMC executives said sales of midrange Clariion systems were strong last quarter — up 12 percent from last year — the Clariion discussion wasn’t all hearts, roses and strong margins on its earnings call. Dell accounted for less than 30 percent of Clariion sales, down from 33 percent in the prior quarter.
Wall Street analysts estimated Dell Clariion revenues for the quarter were down 26% year over year and 12% sequentially. Aaron Rakers of Wachovia pointed out that Dell now accounts for 10.4% of EMC overall revenue, down from 12.3% in the second quarter and 15.8% a year ago.
For the first time since Dell acquired iSCSI SAN vendor EqualLogic last January, EMC CEO Joe Tucci acknowledged his long-time partner’s acquistion of its own SAN platform affected Clariion sales. “We’ve probably gotten a little off track,” he said. “As Dell bought EqualLogic, we diverged more than we should’ve.” Tucci added “there’s a lot more we could and should be doing together…we’re quickly and actively working to put plans in place to make this relationship even better.”
In the meantime, Tucci noted that EMC had built up new sales channels for Clariion, which negated the impact of the decline in Dell Clariion revenues.
Rakers called the Dell revelation “disappointing as [EMC] did note that it was ‘back on track’ with Dell during its prior quarter earnings call.”
Early results are in, and they indicate no massive spending slowdown for storage last quarter but vendors are bracing for one this quarter.
EMC hit expectations for last quarter while indicating customers may be cutting back. That reflects the trend of the other vendors who reported earnings this week.
Systems vendor Compellent realized its first profitable quarter with income of $464,000 a year after going public and a quarter ahead of its goal. QLogic reported higher revenue than expected, although it would have been on the low end of its forecast if not for a one-time royalty revenue benefit. Still, its HBA sales held up reasonably well despite a poor quarter from its larger OEM partner Sun.
VMware also did better than expected, and it’s no secret that virtual server sales bode well for networked storage sales.
Although the fourth quarter is usually strong for storage sales, forecasts are conservative for this quarter. A lot of the conservatism comes from the gloomy reports from analysts and in the media almost daily as well as early signs that sales are slowing.
“We see a slight slowdown in October compared to the seasonality,” QLogic CEO H.K. Desai said during his company’s earnings conference call. “It’s supposed to be a strong month. We see some slowdown compared to what we have seen in the previous October or the first month of the quarter previously.”
VMware CFO Mark Peek said the percentage of enterprise licenses was down compared last quarter compared to the previous quarter as organizations buy only the licenses they need.
“Customers continue to proceed cautiously in their capital spending decision process,” he said. “In some instances, customers are deciding to forego larger discounts offered by enterprise license agreements and instead are choosing to buy for their immediate needs.”
Compellent CEO Phil Soran said he’s still hoping for an increase in spending among smaller shops, although Compellent’s fourth-quarter revenue guidance of $25 million called for only a modest uptick from the$24.6 million it reported from last quarter.
“I think the mid-size enterprise customer is a little more resilient,” he said. “It doesn’t mean they’re not being hit by the economic environment, but I’ve seen some numbers, forecast in storage growths and it’s been hit hard at the large accounts, the enterprise accounts and the mid-size enterprise.”
Sun is following Hewlett-Packard and IBM into the storage blade market with a disk module for the Sun Blade 6000. The disk module holds up to 1.2 TB of storage in the form of eight 73 GB or 146 GB SAS drives.
The latest product rolled out by Sun under its Open Storage brand comes three weeks after IBM rolled out a storage enclosure for its BladeCenter S and a month after HP bundled storage blades with its “Shorty” BladeSystem c3000.
Francis Lam, product manager for the Sun Blade 6000, says a storage module was planned for the 6000 from the start, and the time is right because SAS controller chips have been built into the server modules. “The plumbing has been in place,” he said.
Pricing begins at $1,595.
The storage blade release comes one day after Sun disclosed it struggled again financially last quarter, and expects to lose between $0.25 and $0.35 a share on revenues in the range of $2.950 to $3.050 billion, down from $3.219 billion in the same quarter last year. No mention of storage sales was made in Sun’s press release detailing its latest earnings miss.
Over the last few weeks, I’ve written a couple of stories about how the current global economic crisis is being projected to impact the storage market. While users say they don’t anticipate much of a change in their daily life–storage budgets are lean and adoption of products in the storage market is conservative as it is–financial analysts and storage experts see a much bigger impact for storage vendors from the collective effects of declining storage spending growth.
However, there’s one area where, if you’ll pardon the phrase, a potential silver lining has been spotted: cloud computing. One theory is that less available capital or credit for capital outlay makes the economies of scale and zero-hardware options offered by cloud vendors more attractive. But another theory is that in the current economic climate, users become more risk averse than ever, and the cloud remains a new, relatively bleeding-edge phenomenon.
Today there have been some more analyses released about the possibilities for the cloud market, one a cloud computing spending forecast from IDC and the other is an analysis of the barriers to cloud entry by Gregory Ness for Seeking Alpha.
With or without economic downturns, according to Ness, the nature of today’s network infrastructure is a hurdle to widespread cloud deployment (not to mention the bandwidth of the average data center’s connection to the wider Internet):
Certainly there will always be a business case for elements of cloud, from Google’s pre-enterprise applications to Amazon’s popular services and the powerhouse of CRM, HR and other popular cloud services. Yet there are substantial economic barriers to entry based on the nature of today’s static infrastructure.[…]Until the current network evolves into a more dynamic infrastructure, all bets are off on the payoffs of pretty much every major IT initiative on the horizon today, including cost-cutting measures that would be employed in order to shrink operating costs without shrinking the network.
Automation and control has been both a key driver and a barrier for the adoption of new technology as well as an enterprise’s ability to monetize past investments. Increasingly complex networks are requiring escalating rates of manual intervention. This dynamic will have more impact on IT spending over the next five years than the global recession, because automation is often the best answer to the productivity and expense challenge.
IDC acknowledges that the growth opportunity is “in its infancy” but says the marginal growth will be irresistible to vendors:
Of the $383 billion customers will spend this year within the five major IT segments noted above, $16.2 billion – or a mere 4% – will be consumed as cloud services. By 2012, customer spending on IT cloud services will grow almost threefold, to $42 billion.By 2012 – based on a conservative forecasting approach…customer spending on IT cloud services will grow almost threefold, to $42 billion, accounting for 9% of customer spending.
On one level, one could argue that – in spite of the all the buzz about Cloud Computing and Cloud Services – this model will not even crack 10% of IT spending four years from now. And therefore, one could reasonably ask: why all the fuss?On one level, one could argue that – in spite of the all the buzz about Cloud Computing and Cloud Services – this model will not even crack 10% of IT spending four years from now. And therefore, one could reasonably ask: why all the fuss?
One reason IT suppliers are sharpening their focus on the “cloud” model is its growth trajectory, which – at 27% CAGR – is over five times the growth rate of the traditional, on-premise IT delivery/consumption model. Spending on IT cloud services is growing at over five times the rate of traditional, on-premise IT.As noted in our recent user survey, this rapid growth is being driven by the ease and speed with which users can adopt these offerings, as well as the cloud model’s economic benefits (for users and suppliers alike) – which will have even greater resonance in the current economic crisis.
Even more striking than this high growth rate, is the contribution cloud offerings’ growth will soon make to the IT market’s overall growth. By 2012 – even at only 9% of user spending – cloud services growth will account for fully 25% of the industry’s year-over-year growth in these five major segments. In 2013, if the same growth trajectories continue, IT cloud services growth will generate about one-third of the industry’s net new growth in these segments.
It will be interesting to see how things actually play out.
FalconStor Software today issued a press release saying it will miss its previous revenue estimates for the year, due to a bad third quarter. FalconStor’s new estimate for the quarter that ended Sept. 30 is a range of between $19 million and $19.5 million, in contrast with Wall Street’s $22.78 million consensus.
FalconStor also lowered its guidance for the full-year revenue to between $85 and $87 million, as opposed to its earlier projections of $100 to $104 million. In a statement, CEO ReiJane Huai blamed the wider economy for the shortfall:
“The difficult economic conditions at the end of the third quarter resulted in many companies freezing or lowering their information technology spending, which caused our revenues for the quarter to fall short of our projections. We remain confident in the capabilities of our products. But given the continuing difficult global economic conditions, we are projecting that revenues for the fourth quarter will also be below our previous expectations.”
“They have a much smaller margin of error,” Enterprise Strategy Group analyst Brian Babineau said of FalconStor. “A couple of deals don’t get done and they miss because we are only talking about $20 million a quarter in revenue.” FalconStor declined comment on whether any particular product line or individual product had been most affected by this miss. The company will report its earnings Oct. 28.
Analysts, investors and perhaps customers will watch closely over the next few weeks when storage companies report earnings, with guidance for this quarter and next year of particular interest. In a recent BusinessWeek interview, NetApp CEO Dan Warmenhoven said his company will also miss its revenue growth projection for the year. Worries in the market about IBM due to its financing business were assuaged somewhat by the pre-announcement of a 20% earnings increase for the company and a reaffirmation of its revenue targets for the year last week.
“I think most companies would have preannounced [shortfalls] already,” Babineau said. “I do not expect any [more] third quarter pre-announcements, however, I do expect some very conservative gudiance and commentary for all IT in regards to the calendar-year fourth quarter.”