McDATA Snags Two Storage Start-ups -

McDATA Snags Two Storage Start-ups

McDATA today announced plans to acquire two of the better-known storage start-ups: Nishan Systems and Sanera.

Nishan, an IP storage networking firm, has claimed a number of industry firsts, including the first wireless IP SAN.

Sanera made quite a splash earlier this year with a chart-topping 256-port data center-class director. McDATA has reportedly been interested in acquiring Sanera for some time, but a $35 million funding round in July suggested that Sanera had given up on the talks and planned to go it alone. McDATA, however, apparently made an offer that Sanera couldn't refuse.

Nancy Marrone-Hurley, senior analyst at Enterprise Storage Group, believes the new acquisitions give McDATA an edge over other vendors.

"I think it shows McDATA is getting very aggressive, and is intent on delivering end-to-end storage networking solutions to their customers," Marrone-Hurley says. "McDATA now has Sanera at the core, the Intrepid and Spheron switches in the fabric, and Nishan for SAN internetworking, making theirs the broadest offering in the market. McDATA now has a much stronger offering than Brocade, and actually a stronger offering than Cisco in the storage switch market."

With the Nishan interconnect solutions, McDATA is also entering an area that has been dominated by CNT. "CNT bought InRange in order to have an offering in the fabric, but we don't see that much of them in the market," Marrone-Hurley says.

The acquisitions should go a long way in helping Broomfield, Colo.-based McDATA cement its storage networking portfolio by bolstering its intelligent switch capabilities. Along with many storage industry experts, McDATA sees intelligent switches — those that grant companies the power to access data and manage capacity immediately — as the future of storage networking. 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 reduced infrastructure costs.

Intelligent switches 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.

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. Nishan's products will help McDATA lure customers looking to craft cutting-edge integrated disaster recovery architectures as well as integrate servers and applications into the storage network.

A Leg Up on the Three-Horse Race

McDATA's news is sure to fire up competitors Brocade and Cisco in a market where the three ferociously duke it out. Competition for fabric switch customers was primarily a two-horse race until Cisco entered the market last August. Since that time, Cisco has picked up market share ground on the others through the help of reseller partnerships with the likes of IBM.

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

When fully integrated with McDATA, Sanera's wares should help the company create a real-time storage services infrastructure, with SAN islands and integrated 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.

McDATA also announced that Aarohi Communications will add technology to bolster McDATA's intelligent switch platforms, adding features to improve scalability, internetworking, and intelligence.

At least one industry analyst approves of the deals.

"Many end-users have deployed multiple SAN islands in order to limit complexity or prevent the propagation of faults," says Eric Sheppard, senior analyst at IDC. "However, such environments have proven to be relatively inefficient. Today's announcement gives McDATA a family of products that will help end users build more efficient SANs and, where appropriate, consolidate their infrastructure."

McDATA also announced second quarter results, posting revenues of $107 million, a 39% 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, but the company warned that third-quarter revenues will be below analysts' expectations.

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