SANs, shares and Cisco
SANs, shares and Cisco
A strong position and a buoyant market. By Bruce Harris.
The pressure for data to become a revenue generator instead of a cost centre increases. This requires efficient data storage and retrieval. Enter the Storage Area Networks (SANs) - high speed subnetworks which interconnect different forms of data storage devices with associated data servers. The SAN market looks to be a good one to be in - Dataquest predictions are that the SAN fibre switch market will grow at 38% CAGR between 2002 and 2006 with a total market of US$ 4.3 billion by the end of 2006.
Long the domain of specialist companies, this market has been shaken up by networking giant Cisco Systems' entry signaled by its acquisition of Andiamo Systems. High-end switch leader McData Corp, which has adopted a 31 January fiscal year, has produced strong first quarter results. McData reported net income of $5.3 million, or 5 cents a share, compared with a loss of $17.1 million, or 15 cents a share, last year. Product revenue was $91.4 million, up 66 % from a year ago, while software and professional-services revenue came in at $8.4 million, a 41 % increase.
Andrew McCullough, of Credit Suisse First Boston, said "McData appears well positioned to extend beyond its traditional customer base to drive growth in new distribution channels."He maintained his "outperform" rating on McData."QLogic has reported higher earnings and record revenue for its latest quarter and full fiscal year. Net income in the quarter was $US 29.9 million and revenue was $US 120.6 million (31% higher than a year ago). The company's balance sheet was highlighted by an increase in cash and short-term investments, ending the quarter with $643.2 million. Share prices have gone up in line with these results.
QLogic has been particularly strong in its sale of host bus adapters ("HBA"). Recent research by IDC shows that in 2002 QLogic showed the largest revenue gain of any merchant HBA vendor, growing 45 % from 2001, and accounted for 30.8 % of worldwide Fibre Channel HBA revenues. One possible cloud on the QLogic HBA horizon is that a new generation of technology based on open standards is coming which will bring new competitors. QLogics' Chairman, H K Desai, is unfazed saying that the company had planned for two years for a potential transition to new standards.
QLogic is listed as number 50 on the "Business Week" list of 100 Hot Growth companies for 2003 in the magazine's 9 June issue. One of the most significant corporate plays in this area has been CNT's acquisition of Inrange. CNT's Chairman, Tom Hudson, said: "Our combined company will be a global leader in SAN services, with a recurring maintenance revenue stream of nearly $90 million and a $60 million consulting and professional services division."
CNT's first quarter results showed revenue of $52.3 million, a 16 per cent increase from 2002's first quarter. On a GAAP basis, the company reported a net loss of $2.1 million, or $.08 per share, compared to a net loss of $13.8 million, or $.45 per share, in the year-ago quarter. It is anticipated that the Inrange integration will be complete by the end of the second fiscal quarter.
There are good reasons for the SANs specialists to look to the rest of the year with some confidence - but watch out for Cisco.