Brocade’s preliminary results call for revenue of about $333 million to $336 million in storage gear revenue, which is a five percent to six percent year-over-year decline instead of the three percent to five percent increase the vendor originally projected. The new figures also represent a drop of 14 percent to 15 percent from the previous quarter. Brocade’s FC sales usually decline no more than two percent for the quarter ending in July. Brocade’s Ethernet sales also missed expectation although they will still be up at least 12% from last year.

It’s hard to say exactly why Brocade missed its sales goals, but there are three possibilities: FC SAN sales have dropped n recent months, Cisco has picked up market share, or Brocade has internal problems that caused it to miss its forecast.

Part of the problem is because Brocade sells its products through OEM deals with storage vendors, it has less clear expectations of coming sales than vendors who sell directly. That makes it tougher to accurately forecast its revenue. Still, Brocade said its sales last quarter were hurt by “weaker-than-expected storage end-user demand, which was down slightly from the previous quarter.” But Brocade’s biggest storage partner, EMC, beat its expectations last quarter and other storage vendors did about as well as expected.

Brocade’s quarter runs through July while most others end in June, so perhaps sales fell off during July. We’ll get a better idea of this when Cisco (Wednesday), NetApp (Aug. 17) and Brocade (Aug. 18) report their earnings in the coming weeks. Those earnings reports could also help clarify if Cisco picked up share in FC switching.

Wall Street analyst Kaushik Roy of Merriman Capital maintains that the FC storage market remains strong, and that iSCSI and Fibre Channel over Ethernet (FCoE) haven’t made much of a dent in SANs.

“Considering the healthy SAN sales from EMC, IBM, NetApp/Engenio, Hewlett-Packard/3PAR, Dot Hill and others, we do not believe that the end markets for Fibre Channel SANs are converting to iSCSI or FCoE faster than expected,” Roy wrote in a research note issued today.

In the statement released last Friday, Brocade CEO Mike Klayko said he would give details on plans to grow revenue and “manage expenses” during its earnings call. By manage expenses, does he mean Brocade will follow Cisco’s recent heavy layoffs?

Industry sources say Brocade has been for sale for several years, with Hewlett-Packard and Dell looking at it before deciding to buy Ethernet switch vendors – HP bought 3Com in 2009 and Dell recently said it would acquire Force 10. Brocade has also had a lot of management turnover since it acquired Ethernet vendor Foundry in 2009, most recently losing CFO Richard Deranleau in June.

“Management’s credibility has sunk to the bottom and some current (and past) investors are wondering why the board is not acting on it,” Roy said. However, he added, “Brocade is still an attractive acquisition target for companies who want to enter the datacenter market” and listed Oracle and private equity firms as candidates to acquire the switch vendor.

Canacord Genuity financial analyst Paul Mansky raised the issue again today when he put out a report suggesting that Dell may be ready to drop as much as $5.5 billion on Brocade. Mansky wrote the acquisitions of EqualLogic, Compellent and Perot Systems gave Dell storage, servers and services but left it without the networking piece of the IT stack. Outside of some low-end Ethernet switches it develops, Dell gets most of its networking devices through OEM deals with Brocade and Juniper Networks.

Dell is looking to move from a PC-centric company to an enterprise player. “ … given [that] networking will most likely be among the most critical sources of intelligence helping to re-shape the horizontal/physical layers into a virtual/vertical stack, not owning this [networking] technology puts Dell at risk of simply hopping from one commoditized business into another,” Mansky wrote.

Mansky maintains Brocade is the right target for Dell because Juniper is mostly a service provider and that is not Dell’s business, while other alternatives such as Extreme Networks and Force 10 don’t have enough market share to be worthwhile. Brocade is also the only vendor among those to have a foothold in storage. “Brocade owns Fibre Channel (70% share), exceptionally tight support for which is a must (our view) in a converged world,” Mansky wrote. “Net, Fibre Channel is high ROI, legacy Ethernet is low investment and converged products (recently introduced) are the growth engine.”

Mansky believes Dell should act now as the PC market is expected to decline at a faster rate and Dell has $7 billion in cash. He said a price of $10 per share is possible for Brocade, bringing the deal to $5.5 billion.

There is a risk for any storage vendor that buys Brocade. Such a deal could prompt competitors to push sales of Cisco FC switches, taking away much of Brocade’s revenue. A year ago, that risk was less for Dell because its partner EMC could be counted on to continue to support Brocade as well as Cisco. But the EMC-Dell storage partnership has fallen apart and EMC is a close ally of Cisco. However, as Mansky pointed out, Cisco has angered IBM and Hewlett-Packard (as well as Dell) by getting into the server business. That makes those vendors more likely to stick with Brocade for its storage products, which make up most of its revenue.

TAPs are an option with Virtual Instruments’ VirtualWisdom and NetWisdom FC SAN monitoring products, which also involve software components and can be deployed with or without adding TAPs to the SAN. Previously, according to Virtual Instruments VP of marketing Len Rosenthal, users wishing to use TAPs would have to attach two fiber optic splitters to each connection they wanted to monitor. That was time consuming and disruptive if it involved critical connections. It could also result in more ”light loss” from the fiber optic connections depending on how many TAPs were in place.

Today, Virtual Instruments introduced a new patch panel hardware form factor for TAPs, which allows multiple fiber optic connections to be connected to one 10-Gigabit panel that can be dropped into a user’s existing core switches. This makes connecting to the TAP once it’s in place simpler and uses patch cables, which Rosenthal said users should also be familiar with.

However, even with the new patch panel there will still be some disruption when retrofitting already-running SANs with TAPs. Rosenthal said Virtual Instruments advises users to TAP new SAN connections as a part of installation. “Life is so much easier if the TAP is in there to begin with,” he said.