McData Nabs Two Storage Networking Businesses

Storage infrastructure provider McData struck a blow
against rivals Brocade Communications
and Cisco Systems Monday by vowing
to purchase two privately-held storage networking companies — Nishan
Systems and Sanera Systems — for a total of $185 million in cash.

The purchases should go a long way in helping Broomfield, Colo.’s McData
cement its storage networking portfolio by bolstering its intelligent switch
capabilities. Along with many storage industry experts, McData sees
intelligent switches — those that grants companies the power to access data
and manage capacity immediately — as the future of storage networking.

This is in great part because the IT industry has entered an era of storage
and server consolidation and enterprises still crave more robust storage
capabilities. There is a less is more mentality, with the emphasis on less
infrastructure costs.

Intelligent switches, which enable heterogeneous data movement applications
to migrate to the network and pave the way for virtualization, which is the
notion of hardware/software processes that present logical representations
of physical storage.

A virtualization engine lodged within an intelligent switch has the
potential to move existing storage and data management applications to the
heart of the storage fabric, making them more effective and efficient.

At least one industry analyst approved of the deals. John Webster, founder and lead analyst for Data Mobility Group, said the Nishan purchase is compelling in terms of the technology and demonstrate McData’s interest in dipping its ladle into the IP well after sticking to fibre channel for years.

However, apart from saying that the deals would allow McData to “expand its market opportunities” on a conference call, McData’s intelligent switching strategy and “how they plan to bake it all together for the OEMs” remains somewhat unclear, Webster told

McData’s news is sure to fire up competitors Brocade and Cisco, where the
three ferociously duke it out. Competition for fabric switch customers used
to be primarily a two-horse race until Cisco entered the market last August.

Since that time, it has picked up market share ground on the others with the
help of reseller partnerships with the likes of partner IBM. But McData has some work to do. Webster said Brocade is the leader in terms of spreading its intelligent switching platform strategy gospel to customers and partners.

What is clear, is that McDATA will acquire all outstanding shares of Nishan Systems for $83 million in cash and will also assume approximately $2 million in debt. Nishan is a
leading maker of IP storage switching products that allow customers to use
their fibre channel storage network infrastructure and their IP networks to
consolidate storage infrastructures across the enterprise.

With Nishan’s equipment, McData hopes to improve internetworking
capabilities that help scale data center storage networks with
multi-protocol SAN routing and iSCSI products. Specifically, Nishan’s
products will help McData lure customers looking to craft cutting-edge
integrated disaster recovery architectures, as well as the integration of
servers and applications into the storage network.

McData will pay $102 million for Sanera, which makes storage area network
(SAN) consolidation products with dynamic partitioning features that allows
enterprises to consolidate SANs into one system that maintains the autonomy
and security of independent SAN islands.

When fully integrated within McData, Sanera’s wares should help the company
create a real-time storage services infrastructure, with SAN islands and
integrate intelligent storage utility services on one platform. Such
consolidation is an attractive value proposition for companies looking to
cut IT costs.

Ultimately, McData’s centralized management and services platform —
SANavigator and Enterprise Fabric Connectivity Manager — will be extended
to support all of these new technologies and services.

Still, McData customers such as Verizon and partners such as Hitachi Data
Systems approved of the deals, which are expected to close within on to two

In related news, McDATA announced that Aarohi Communications will add
technology to bolster McDATA’s intelligent switch platforms, adding features
to improve scalability, internetworking, and intelligence. Financial specs
for that deal were made public.

McData also announced second quarter results, posting revenues of $107
million, a 39 percent increase over second quarter 2002 revenue of $77.3
million. Net income for the second quarter of 2003 was $9.1 million or 8
cents per share.

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