Take your pick. Brocade Communications Systems Inc either took a beating from Cisco Systems Inc in the fourth quarter, or it managed to almost entirely stop Cisco poaching customers in the run up to the Brocade-McData merger.
The first version of events is backed by researcher The Dell’Oro Group, which yesterday published numbers showing Cisco’s share of total SAN switch and director market revenue leaping to 28% and $128m in fourth quarter, up from 24% in the previous quarter.
Meawhile the combined market share of Brocade and McData dropped from 73% to 68% and $309m, because turned to its advantage the uncertainty created by the Brocade-McData merger to win over McData customers, according to Dell’Oro. Brocade’s market share dipped by one percentage point, and McData’s slumped by four points according to the researcher.
Not too surprisingly, Cisco supports this version of events. We launched a very aggressive marketing campaign aimed at customers we hadn’t been able to dislodge before, a Cisco spokewoman said yesterday.
Also not hugely surprisingly, Brocade’s version of the story is quite different. Many times we wouldn’t say a word. But in this case, we feel we have to speak out. We know the market, we have a unique perspective on it, and we believe we held our market share quarter-on-quarter, said Brocade vice president Tom Buiocchi.
According to Brocade’s calculations, Cisco’s SAN switch and director revenue was only $105m during the quarter — almost a fifth lower than the number cited by Dell’Oro.
Deciding which side is right is complicated by the fact that as that Dell’Oro itself says, its estimate of Cisco’s sales is based on what Cisco reports to the researcher. And while Dell’Oro can do its own arithmetic and make background checks, ultimately it has to rely on Cisco’s word.
Brocade has not explicitly questioned Cisco’s honor, but it has pointed out that Cisco very rarely declares absolute storage sales numbers during its formal earnings calls or in SEC filings, when it would be bound by strict financial regulations.
In contrast, Brocade and McData’s SAN revenues are easy to gauge from their quarterly financial statements, because they represent the huge majority of both companies’ businesses. Dell’Oro is standing by its figures, but it does concede this point.
Brocade is absolutely correct – it is very difficult to check on that $128m of storage revenue inside Cisco’s $8bn quarter, said Dell’Oro founder Tam Dell’Oro.
So Dell’Oro works from Cisco’s numbers. Cisco’s people tell us when their numbers are bad, and when they’re good. When people are consistent like that, I have faith in what they say, she said.
Dell’Oro said that her company has been calculating market shares for over a decade, and that it does compare Cisco’s numbers with its own estimates. She also said that Cisco’s numbers have been consistent with the comments that Cisco CEO John Chambers has made about storage sales during the last several quarters.
One detail point of the controversy is related to the fact that Dell’Oro’s reports are based on calendar quarters. Cisco, Brocade and McData’s fiscal quarters all close a month later, so for example Cisco’s fiscal second quarter ended on January 31.
Dell’Oro’s translation from fiscal to calendar quarter assumes a linear sales rate, with sales evenly spread across the three months. We don’t say to ourselves December must have been huge, and January would only been 10% of the quarter, Dell’Oro said.
By ignoring strong seasonality in SAN sales, Dell’Oro will have underestimated Brocade’s calendar fourth quarter sales. (Dell’Oro argues that this is balanced out when considering multiple quarters.)
Cisco’s calendar fourth quarter numbers do not go through the same flattening process, because Cisco gives Dell’Oro numbers that represent calendar quarters and were originally created from weekly sales totals. So as Buiocchi says: This is not comparing apples with apples.
But that is far from a complete explanation of the difference between the two side’s claims, as it does not account for the difference between Brocade’s estimate of Cisco’s fourth calendar quarter storage revenue — $105m – and the $128m quoted in Dell’Oro’s report.
Part of Brocade’s calculation of that $105m was based on the little information that Cisco has declared publicly about its SAN sales – as was Dell’Oro’s check for consistency of Cisco’s numbers. The last time Cisco declared a base point for such calculations was almost two years ago in May 2005, when Chambers talked of a storage revenue run rate of around $70m.
Since then all of Cisco’s public statements about storage sales have only been about growth and not absolute quantities, and have only been given as approximations.
For the record, for Cisco’s second fiscal quarter Chambers claimed last month that the company’s storage sales were up 45% year-on-year.
Cisco is a customer of Dell’Oro, but the researcher said that Cisco is responsible for only around 2% of of its revenue.