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Systems Inc. last quarter, according to the Dell'Oro Group's "1Q09 SAN Report." The market research firm attributed Brocade's whopping gains to superior Fibre Channel switch technology and Cisco's alienating its channel partners.

Brocade pulled in more than two-thirds of the high-end Fibre Channel director market revenue and three-quarters of the overall storage area network (SAN) switch revenue in the quarter as Cisco bore the brunt of the overall 18% drop in overall FC switch revenue.

While Brocade's Fibre Channel switch sales declined 6% last quarter to $298 million, Cisco's fell 45% to $78 million. Brocade had 75.5% of the market share last quarter while Cisco's share of 19.8% was its lowest since its early days in the storage area network market. Brocade gained 10% share in the overall SAN switch market in the quarter.

Cisco's share was 26.5% in the first quarter of 2007 after Brocade acquired McData to pare the market to two major vendors, and rose to 30.4% in the first quarter last year.

Cisco once led Fibre Channel director market

Brocade's gain in the high-end director segment was especially impressive, because that is Cisco's traditional strong area. Cisco's share dropped to 32.6% last quarter – its lowest since the Brocade-McData acquisition. Brocade jumped from 52.7 to 67.1 percent of the director market in one quarter. Cisco had 51% of the director market in the fourth quarter of 2007, just five quarters ago.

Brocade's first-quarter director revenue was $126 million – down from $130 million the previous quarter. Cisco's revenue of $61 million tumbled from $116 million in the fourth quarter of last year.

Dell'Oro president Tam Dell'Oro said the most telling first-quarter number was the average price per port. Brocade's average stayed flat from the previous quarter at $545 while Cisco's dropped from $480 to $402.

"It's very unusual to have such a huge price change in one quarter, at the high end especially," Dell'Oro said.

That's a 16% per port drop for a product that typically has a small decline or increase in price from quarter to quarter. Dell'Oro attributed part of the price drop to Cisco product rebates, but said Brocade's technology lead and Cisco's conflict with its channel partners likely were also factors.

"There's a strong transition underway to 8 Gig, and I think we won an unusually large portion of the overall deals out there," Stevens said.

Did Cisco alienate friends?

Dell'Oro said Cisco's launch of its United Computing System server product this year in direct competition with server and storage partners IBM Corp. and Hewlett-Packard (HP) Co. also hurt its position in Fibre Channel switches. IBM, HP and EMC Corp. are the largest OEM partners for the Fibre Channel switch vendors.

"We presume that Cisco's 1Q09 sales decline in SAN was the first evidence of its partners realigning based on the strategic changes at Cisco," according to the Dell'Oro report.

The report added that Cisco's partners may "switch allegiance" in other markets such as Ethernet switches, routers, WLAN, and enterprise telephony, but they started with SAN switches because "of product issues … and Cisco's brand in SAN is not as strong as it is in Ethernet switching or routing …"

IBM has already struck an OEM deal for Brocade's Ethernet Foundry switches, and HP is believed to be preparing to sell Foundry products that don't compete with its ProCurve Ethernet switches.

The Dell'Oro report surmises that Cisco "has a good shot at winning" in its overall strategy of trying to gain more new revenue from servers and services than it will lose from its channel partners on routers and switches. But for now, Brocade is benefitting from Cisco's transition.