storage networking

HP buys 3Com, not Brocade

Although Hewlett-Packard spent $2.7 billion to buy 3Com Wednesday largely to make it more competitive with Cisco on the Ethernet switching front, the deal will also have implications for Cisco’s main storage competitor Brocade.

First, the deal means HP won’t be buying Brocade – at least not any time soon. HP was considered the most likely company to buy Brocade after word leaked that Brocade was looking for a buyer last month. It appears that HP did consider it – HP executive VP Dave Donatelli said on a webcast explaining the 3Com acquisition that HP looked at all networking options – but decided 3Com’s Ethernet switches and routers were a better fit than the products that Brocade picked up from Foundry.

The 3Com acquisition also means HP won’t follow the lead of IBM and Dell and sign an OEM deal with Brocade for its Ethernet switches. With 3Com’s products and its own ProCurve platform, HP should have enough to fill out its Ethernet lineup.

The deal won’t impact Brocade’s core business – selling Fibre Channel switches. With Cisco and Brocade as its only options, HP will likely continue to lean heavily on Brocade for storage connectivity.

Still, the HP-3Com deal is seen as bad news for Brocade. Several Wall Street analysts downgraded its stock price today, and its shares dropped more than a dollar in early trading from Wednesday’s closing price of $9.25.

While talk of Brocade getting acquired has diminished, Wedbush Securities analyst Kaushik Roy raised the possibility that networking vendor Juniper might want Brocade to create “an even more formidable competitor to Cisco.”

“We think that neither Dell nor IBM would be interested in buying Brocade due to Brocade’s OEM model,” Roy wrote today in a note to clients. “Any purchase by one of the server vendors would lead to loss of revenue streams from the other server OEM vendors. We, however, think that Brocade might be a good acquisition target for Juniper.”

Emulex leads its convergence strategy with Ethernet

Emulex used its analyst day today to officially roll out its OneConnect Universal Converged Network Adapters (UCNAs) and underscore its strategy of taking a 10-Gigabit Ethernet path to converged Fibre Channel and Ethernet networks.

Emulex said the OneConnect adapters it first talked about in February are available for partners to ship, and IBM has agreed to OEM its 10-GigE NIC and 16 Gbps Fibre Channel HBAs with the Power Systems server platform.

Emulex is taking a different path than its main rival QLogic, which already has several partners selling its single-chip 8100 Series CNAs. Emulex is releasing its 10-GigE adapter first with TCP/IP and TCP Chimney support, and hopes to deploy a pay-as-you-go strategy where customers will later upgrade with iSCSI and FCoE connectivity. Emulex gets its 10-GigE silicon through an OEM deal with ServerEngines.

Emulex is counting on 10-GigE and Intel’s Nehalem servers driving convergence, with storage connectivity to follow.

“We’ve taken an Ethernet approach rather than a storage-centric approach,” Emulex VP of corporate marketing Shaun Walsh told StorageSoup. He says the Emulex approach lets customers pay for only 10-GigE first, instead of having to pay for FC connectivity they might not use yet.

“Every NIC card has the potential to be an FCoE card,” Emulex CEO Jim McCluney said during his analyst day presentation.

Emulex customer Lars Linden, SVP of data center services for Royal Bank of Scotland, spoke at the analyst day to express his eagerness for a converged network. Linden said convergence will eventually help him simplify management, reduce cables and increase utilization, adding that it can’t arrive soon enough for him. He says he RBS spends about $500,000 a year on cabling.

“I have people on staff who do nothing but cabling all day long,” he said. “They’re very clever people and I would like to have them do higher value activity, but this is table stakes for running a data center. As soon as there is a commercially available set of capabilities and technologies supporting convergence, there will be a rapid adoption.”

Linden compared the eventual move to consolidated networks to virtualization as a “game changer” technology.

Nobody expects 16-gig FC any time soon, despite Emulex’s touted design win. Emulex executives acknowledged the market moved to 8-gig FC much slower than it went from 2-gig to 4-gig FC so there’s no hurry to push out 16-gig products.

“This is a future announcement,” McCluney said. “We’re not going to see any 16-gig revenue for quite some time.”

The suspicion here is that Emulex and IBM announced the 16-gig FC design win to end speculation that QLogic might replace Emulex FC HBAs on the Power Series after securing a CNA OEM win with IBM last week. Emulex is IBM’s exclusive partner for 4-gig and 8-gig HBAs on the Power Series.

“We believe investors may have questions regarding QLogic’s recent announcement that its FCoE CNAs had been qualified within IBM’s System p (Unix) server platforms given that Emulex has long been the sole-source provider of FC HBAs into these IBM server platforms,” Stifel Nicolaus Equity Research analyst Aaron Rakers wrote in a note to clients after the Emulex analyst day.

QLogic ’swipes’ another FCoE win

Another piece of the Fibre Channel over Ethernet (FCoE) puzzle was put in place today when IBM said it will ship QLogic’s 8142 converged network adapters (CNAs) inside the Power Systems server platform for native FCoE connectivity.

IBM’s p Series servers run Unix and Linux operating systems. QLogic reps are crowing over the design win because it comes in its biggest rival’s backyard. IBM ships Emulex Fibre Channel HBAs exclusively with its p series, but has gone to its rival for FCoE adapters. Satish Lakshmanan, QLogic’s director of product marketing for host solutions, says QLogic’s is the only CNA that will ship with the IBM p series.

The 8142 is part of QLogic’s 8100 Series single-chip CNA platform that handles 10-Gigabit Ethernet traffic and has an integrated FCoE offload engine.

“This gives them a foot in the door in the p series,” Enterprise Strategy Group analyst Bob Laliberte said of QLogic.

Laliberte says the long-time FC HBA rivals have taken different paths in the early days of converged networking, with QLogic racking FCoE design wins while Emulex picks up 10-Gigabit Ethernet wins with its universal converged network adapters (UCNAs).

“QLogic was first to market with a single-chip architecture for FCoE that’s dramatically lower in power consumption, footprint and heat,” Laliberte said. “Being first out of the gate gives them a chance to get design wins in FCoE. Emulex is going in a different direction. You see Emulex getting wins for 10-gigE and down the road partners have an option to turn on FCoE.”

“This isn’t the only customer we’ve swiped away,” Lakshmanan said. “There’s more that will be coming.”

NetApp said in August that it would rebrand QLogic’s 8152 CNA as a built-in adapter for its FAS storage arrays. NetApp also qualified Brocade’s 1020 CNA but not Emulex’s yet.

IBM also sells QLogic’s 8100 CNAs on its System x and BladeCenter servers, and EMC qualified QLogic’s CNA on its Symmetrix, Clariion and Celerra NS storage platforms.

These are still early days for FCoE and converged adapters, though. Widspread adoption of FCoE on servers isn’t expected before 2011 and it will likely take years after that for it to show up in any volume on the storage side.

Cisco makes mainframe move

Cisco is adding performance and security features to its MDS 9000 Fibre Channel SAN director platform to make it more palatable to mainframe shops.

The enhancements will speed replication on mainframes over the WAN and add encryption and management capabilities along with 8 Gbps FICON support. The idea is to improve Cisco’s FICON performance as IBM begins phasing out older ESCON mainframe connectivity devices, which will force customers to swap out mainframe switches and HBAs.

“All those ESCON directors are going to be taken out and need to be replaced,” Enterprise Strategy Group analyst Bob Laliberte said. “It will be a phased type of thing, and it presents a great opportunity for Cisco to get penetration on mainframes.”

Cisco’s enhancements include:

• Cisco XRC Acceleration that speeds the performance of IBM z/OS Global Mirror – formerly known as Extended Remote Copy (XRC). Cisco XRC Acceleration caches data to reduce latency over the WAN and speed replication.

• Cisco TrustSec Fibre Channel Link Encryption works on data that goes over any native Fibre link through an upgraded 8 Gbps linecard on either end of Cisco Inter-Switch Links (ISLs). The encryption works on FICON and open systems.

• Cisco I/O MDS 9000 I/O Accelerator, a SAN-based fabric application to speed replication to disk or tape for disaster recovery.

Cisco MDS directors have been more popular in open systems environments than mainframes. When Cisco got into the Fibre Channel switch market in 2003, rivals McData and InRange had a lock on the mainframe space. McData and InRange are now gone, and Brocade has the IP from both companies through acquisitions. Cisco’s storage competitor Brocade still sells McData directors and will likely leverage mainframe IP into its DCX and other new generation directors, but Cisco is looking to persuade organizations with ESCON to switch to MDS.

Laliberte says the XRC Acceleration and Cisco’s ability to re-map FC ports from old directors to MDS 9000 directors by using VSANs should prove especially helpful for mainframe customers.

Cisco’s software line product manager for the MDS Bob Nusbaum says, “IBM’s phase out of ESCON is a strong signal that ESCON users should transition to FICON.”

Nusbaum estimates there are millions of ESCON devices still in use, although the migration to FICON has been going on for years. “If it was easy for customers to get off of it, they’d have done it already,” he says.

Broadcom quits knocking on Emulex’s door *UPDATED*

It turns out Broadcom can take a hint after all.

After Emulex repeatedly spurned its acquisition offers, Broadcom today threw in the towel and said it will walk away. However, the Ethernet-chip maker may not be giving up on buying a storage company altogether.

“Although we were unable to negotiate an expeditious and friendly transaction at a price that makes sense to us given the expectations set by the Emulex board, there are other value-creating alternatives that we will now turn our attention to as we position Broadcom to capitalize on the emerging opportunities in the converged enterprise networking markets,” Broadcom CEO Scott McGregor said in a news release.

Broadcom’s decision to walk came after Emulex’s board today rejected its latest offer to buy the HBA company, claiming the bid of $11 per share or about $912 million is still too low.

“We unanimously believe Emulex will deliver significantly more value than Broadcom’s revised offer through the company’s rapidly developing converged networking business and solid execution in our host server and embedded storage markets,” Emulex chairman Paul Folino said in a statement.

Folino did add, “we would of course give full consideration to a bona fide offer from any party that reflects the full value of the company.”

Broadcom had been chasing Emulex since December, and made its first formal offer of $9.25 per share or $764 million in April. Emulex management has accused Broadcom of trying to take advantage of its depressed stock price during bad economic times. Emulex shares closed at $9.70 Wednesday, but opened at $8.44 today and traded at $8.90 by mid-afternoon after the deal fell through.

What are Broadcom’s alternatives? Emulex rival QLogic would be even more expensive to buy, so that’s probably not an option. Broadcom can try to build its own Fibre Channel over Ethernet (FCoE) products, or it could pursue LSI’s dormant FC HBA technology.

Emulex also said today it expects to report revenues of approximately $78 million to $79 million for last quarter, in the high end of its forecast of $73 million to $80 million. CEO Jim McCluney added that Emulex recently scored two OEM design wins for its LightPulse HBAs and two design wins for its 10 Gbps Ethernet OneConnect converged network adapters – all with tier 1 vendors. Emulex did not name its partners on those deals.

Voltaire unveils new 10 GbE switch

There’s a new Ethernet switch vendor on the market as lines are being drawn in the sand about the future of data center networks.

Voltaire, previously focused mainly on InfiniBand switches, today unveiled its entree into the data center Ethernet market, the Voltaire Vantage 8500. The Layer 2 Ethernet switch is based on some of Voltaire’s existing InfiniBand IP, including its 11.5 Tbps chassis. It can support up to 288 non-blocking Ethernet ports, and up to 12 chassis can be combined in a cluster using Voltaire’s Scale Out Fabric (VSOF) software. The product will become available in the second half of 2009.

As the ripple effect of server virtualization moves through the data center infrastructure, networking vendors are establishing their philosophies about what the next-generation network should look like. Cisco has come out this year with its Unified Computing System (UCS) blade server product, has aggressively advanced the concept of Fibre Channel over Ethernet (FCoE), and is looking to offer customers vertically-integrated, turnkey infrastructures all from its own product portfolio. Brocade, on the other hand, is cozying up to partners Cisco alienated with UCS — mainly IBM and Hewlett-Packard — while developing FC and Ethernet separately alongside FCoE.

Voltaire shares some of Brocade’s philosophy, particularly when it comes to partnerships rather than trying to own the whole infrastructure stack. Voltaire is even less bullish on FCoE than Brocade, which has already released FCoE switches and has pledged it will release FCoE converged network adapters (CNAs). “FCoE is part of our story, but adoption will take longer than people anticipate,” Voltaire vice president of marketing Asaf Somekh says.

The Vantage 8500 is “FCoE ready,” but Voltaire is focused on the data center Ethernet (DCE, also often called Converged Enhanced Ethernet (CEE)) for now.

Voltaire isn’t the only InfiniBand vendor to play the consolidation game. Voltaire’s InfiniBand rival Mellanox has switches and gateways that support InfiniBand, Ethernet and Fibre Channel on the same device. QLogic is one of the early leaders in FCoE, and also sells InfiniBand switches as well as FC Host Bus Adapters (HBAs).

“It’s interesting to see what InfiniBand vendors are bringing to Ethernet,” said Taneja Group analyst Jeff Boles. “You see some innovation in the communictions stack and they deliver more performance than you get from traditional Ethernet products up front.”

InfiniBand has also been a unified network for a while, so InfiniBand vendors “are used to taking a different look at the fabric than SAN vendors - similar to Finisar’s NetWisdom [SAN monitoring device],” Boles says. “You look at that and say, why couldn’t I get this from Cisco for MDS three or four years ago, when I needed it?”

Deja vu: Emulex rejects Broadcom

Emulex rebuffed Broadcom again today, advising its shareholders to reject the cash tender offer Broadcom made May 5 in its latest attempt to acquire Emulex.

If you’ve been following this story, today’s news is no surprise. Since Broadcom first went public with its offer of $9.25 per share April 21, Emulex executives have claimed the offer undervalued the stock and that Emulex could do better on its own. The Emulex board rejected Broadcom’s original offer in December, then on May 4 it publicly declined the Broadcom offer. Broadcom then decided to make its offer directly to the Emulex shareholders.

The reasons cited by Emulex today:

• Significantly undervalues Emulex’s long-term prospects and does not adequately compensate stockholders for their shares;

• Is opportunistic, given that Broadcom was aware of significant new non-public design wins by Emulex in converged networking prior to making its proposal on April 21, 2009;

• Does not compensate Emulex’s stockholders for a range of other initiatives being undertaken by Emulex that will start to meaningfully impact earnings within the next year and beyond;

• Is clearly timed to take advantage of Emulex’s depressed stock price, which has been impacted by the current unprecedented negative macroeconomic conditions;

• Is funded in significant part by Emulex’s own cash resulting in Broadcom offering only $5.59 per share for the operations of
  Emulex; and

• Is highly conditional, creating substantial uncertainty as to whether Broadcom would be required to consummate the Offer.

Broadcom’s offer to Emulex shareholders expires June 3. The Ethernet chipmaker is looking to acquire Emulex’s Fibre Channel technology to position itself for the consolidation of storage and server networks expected to take place over the next few years.

Emulex’s stock opened today at $10.52.

Broadcom takes another shot at Emulex *UPDATED*

Broadcom fired its counter salvo at Emulex today – taking its $764 million offer directly to shareholders.

A day after the Emulex board turned down Broadcom’s offer to buy the HBA vendor, Broadcom made a tender offer to Emulex shareholders to buy their stock for $9.25 in cash. That’s the same price per share Broadcom offered the Emulex board in December. The new offer expires June 3.

Broadcom also said it filed a preliminary consent solicitation statement to amend Emulex’s bylaws to allow stockholders to call a special meeting of stockholders. Cutting through the legal jargon, that means Broadcom is trying to get Emulex shareholders to call a meeting and vote to sell their stock to Broadcom.

Broadcom’s press release points out the offer represents a 62% price premium over Emulex’s stock price for the 30 days before Broadcom first made its offer public April 21, and a 40% premium over the price on April 20. However, Broadcom’s offer is below Emulex’s opening price today of $10.75. Financial analyst Kaushi Roy of Wedbush Morgan Securities says Emulex’s rising stock price “means that Emulex shareholders believe that Broadcom ‘really’ wants it and that Broadcom will increase the offer price.”

Broadcom urged Emulex shareholders to overturn the board’s decision.

“The Emulex board’s response on Monday and its continued unwillingness to engage in discussions with Broadcom are clearly not in the best interests of either its stockholders or its customers,” Broadcom CEO Scott McGregor said in a statement. “This intransigence could cause needless delay in efforts to combine our two companies, leading to further deterioration of Emulex’s market share and stockholder value.

“While we much prefer to arrive at a negotiated agreement with Emulex, the Emulex board has left us with no choice but to ask Emulex stockholders to call for a special meeting of stockholders so that they can consider the merits of our offer for themselves.”

Broadcom’s release also answered statements Emulex management has made since the offer was made public. Referring to 10-Gigabit Ethernet OEM design wins Emulex says it has earned at Broadcom’s expense, Broadcom claims “[Emulex] has failed to demonstrate an ability to convert design wins into either revenue growth or market share. Over the last several years, including this most recent quarter, Emulex has continued to lose share to its larger competitor [QLogic].”

Broadcom also pointed out financial analyst estimates for Emulex lowered expectations for Emulex revenue this year and next after the vendor’s latest earnings report, “suggesting that Emulex’s future standalone opportunities amid increased competition remain highly uncertain.”

Emulex sent out a release this afternoon saying its board will review the tender offer, and advised its stockholders to take no action on the consent solicitation. “The Emulex Board will make its recommendation on the tender offer and respond to the consent solicitation in due course,” the company said in a release.

When I spoke to Emulex COO Jeff Benck yesterday after Emulex rejected the offer, I asked him about the possibility of Broadcom appealing directly to shareholders.

“I think shareholders are looking for best value they can get and we have to do a good job of describing our value and what we can bring to table,” Benck said.

In other words, the two management teams are competing to convince shareholders they represent the brighter future.

Voltaire to branch into “FCoE-ready” 10 GbE switches

The more conversations I have about FCoE, the blurrier the distinctions get between its value prop and InfiniBand’s. The declaration today that InfiniBand switch maker Voltaire plans to get in to the Converged Enhanced Ethernet (CEE) game with a new line of “FCoE-ready” Ethernet switches just reinforces that idea.

Voltaire VP of marketing Asaf Somekh said that the similarities are not coincidental. CEE, sometimes called Data Center Ethernet (DCE), is being worked on by “all the same people who defined the InfiniBand standard 10 years ago,” he said. “Some features have been borrowed and sometimes stolen from InfiniBand, which has been lossless since day one.” Both InfiniBand and FCoE are supposed to consolidate the ‘first hop’ networking infrastructure, carrying both Ethernet and FC packets over a converged pipe.

Somekh said Voltaire remains committed to InfiniBand, but “if Ethernet is going to add features that require InfiniBand expertise, why not leverage that opportunity?” The concept, software and chassis for the new 10 GbE switches will be based on the current InfiniBand models. The company has had parallel engineering teams working on InfiniBand and Ethernet for more than 18 months, according to Somekh.

Voltaire will focus on layer-2 data center switching rather than top-of-rack or edge switches with its switches when it ships them later this year. It plans to team up with server vendors to compete with Cisco’s Unified Computing System (UCS). “A complete solution is a valid thing to do, but Voltaire switches are scalable to thousands of servers and compatible with any server OEM,” Somekh said

The product itself will run Ethernet and will be “FCoE ready,” but “the gateway functionality of FCoE, transmitting Fibre Channel traffic, happens at the top of the rack,” Somekh said. “FCoE is a nice architecture, and people are definitely interested, but it will be some time before it’s [built out].”

Emulex: We’re about more than Fibre Channel

We don’t know yet what Emulex’s board will do about the takeover offer from Broadcom, but Emulex management hardly seems resigned to becoming the Fibre Channel piece of a larger vendor’s convergence strategy.

Since Broadcom went public with its move on Emulex last week, Emulex executives have been positioning their company as one with enough Ethernet capability to successfully compete with Broadcom and others on that front.

The new spin started on the Emulex earnings call Monday night. “The cornerstone of our strategy is the converged data center, based on 10-gig Ethernet technology,” CEO Jim McCluney said. “Our converged data center network is one that unifies IP and storage networking over a single wire.”

McCluney said the strategy revolves around its OneConnect Universisal Converged Network Adpaters and OneCommand management platform. Both rely on 10-Gigabit Ethernet for iSCSI, Fibre Channel over Ethernet (FCoE) and enhanced Ethernet.

With ASICs it gained through a joint development partnership with startup ServerEngines, Emulex claims 16 10-Gigabit Etherenet-based cards, five 10-GigE NIC design wins, three 10-GigE iSCSI adapter wins, and four Fibre Channel over Ethernet (FCoE) design wins with OEM partners.

“While we’re not in a position to announce the details of these wins, we believe some of them have come at the expense of our leading competitors, including Broadcom,” McCluney said.

Financial analysts on the call got the point. “On numerous occasions during the earnings call, Emulex alluded to 10GbE, iSCSI, and FCoE-based, Tier 1 OEM design wins, suggesting the company may not require additional Ethernet-based expertise to compete well in the ongoing unified fabric adoption cycle,” analyst Amit Daryanani of RBC Capital Markets wrote in a note to clients.

So when I spoke to Emulex chief marketing officer Steve Daheb this week about the company’s strategy, it was no surprise he declared Emulex an Ethernet company.

“People are saying,’ You’re kidding me, you guys have done the Fibre Channel thing, now you tell me you’re winning 10-gig NIC deals, Ethernet-based deals?’” he said. “And we are.”

Daheb added that Emulex isn’t abandoning Fibre Channel. It will add encryption and security features to its HBAs, and will support the FC roadmap beyond 8-Gbps.

“We continue to invest in Fibre Channel,” Daheb said. “We have 8-gig HBAs today, and we’ll be a player in 16-gig Fibre Channel.”

But Emulex sees there is more to the world than FC. It could even conceivably follow its HBA rival QLogic into InfiniBand.

“It’s something we’re watching carefully,” Daheb said. “We see InfiniBand for inter-switch clustering catching on. But we’re betting on Ethernet here. With the low latency [of enhanced Ethernet], you get a lot of those same benefits as InfiniBand.”