By Dave Simpson
—If market figures from the third quarter are any indication, the SAN market should cap 2006 on a high note. For example, according to research from the Dell'Oro Group, sales of Fibre Channel switches shot up 13% in Q3 to $348 million, eclipsing the market high in Q4 2004. Port shipments rose 14%, to almost 800,000 switch ports shipped in the third quarter.
The rise in revenues came despite a decline of about 6% in prices for modular switches. ("Modular" switches provide high availability and include, but are not limited to, director-class switches. This is in contrast to "fixed" switches, which have a fixed number of ports and are often referred to as "fabric switches.")
High-end modular switches represented the fastest growing category of SAN switches, with port shipments surging 33% and revenues rising 25%.
The Dell'Oro Group predicts similar increases for the fourth quarter based on early reports from switch vendors Brocade, Cisco and McData.
Although sales of modular switches surged in the third quarter, sales of fixed switches were somewhat stagnant, with port shipments growing about 5% and revenues remaining about the same as in the second quarter.
Cisco chalked up the biggest gains in Q3, with revenue growth of almost 50% (to $86 million). Cisco's gains in the high-end modular switch category put the company in a neck-to-neck race with McData for the #1 position. The stiff competition was reflected in a 10% price decline in Cisco's switches—more than twice the typical quarterly price decline.
Buoyed by sales of its 4Gbps switches, Brocade's modular switch revenues increased 30% in the third quarter, offsetting a 3% decline in revenues for the company's fixed switches. In the third quarter, sales of 4Gbps switches accounted for about 50% of Brocade's shipments, up from 24% in the previous quarter. (Brocade was the only vendor shipping 4Gbps modular switches in the third quarter.)
McData was plagued by a number of issues in the third quarter, including ASIC supply constraints and qualification issues with EMC for McData's Intrepid 10K switch. McData's switch sales rose 5% in Q3.
Meanwhile, the Fibre Channel host bus adapter (HBA) market was relatively flat in the third quarter, with port shipments growing only 3% (to 459,000 ports) and revenues holding steady at $206 million.
LSI Logic remained in a distant third place position (6% market share) behind Emulex and QLogic, yet racked up the fastest growth in terms of port shipments with an increase of 12% in Q3, according to the Dell'Oro Group. The market research firm attributes LSI's growth surge to strong sales in the company's storage systems division.
Dell'Oro Group analysts predict a rapid shift to 4Gbps HBAs as market leaders Emulex and QLogic ramp up shipments of those products. Dell'Oro expects 4Gbps HBAs to represent 16% of the overall HBA market in the fourth quarter, with pricing at 5% to 10% more than 2Gbps HBAs.
For 2006, the Dell'Oro Group predicts an increase of 11% in standalone HBA revenues, with revenues approaching $926 million. HBA port shipments are expected to increase 28% in 2006.