McData CEO scopes out CNT acquisition

Storage switch maker McData in January acquired CNT, a leader in WAN extension and long-distance data replication technology. Network World Senior Editor Deni Connor recently sat down with McData CEO, Chairman and President John Kelly to chat about the reasons why McData acquired CNT and the state of the Fibre Channel switch market.

Why did McData acquire CNT?

In our long-range strategic plan, we believe that the Fibre Channel connectivity management system business is really coming together. Almost anybody that talks with users will find that out. For us, we thought that this was a very proactive move to get a company that was doing many of the things I've just described and putting it together. We clearly hoped that one 1+1 was going to equal 3, 4 or 5 as it relates to being able to doing something that is to the customers benefit in terms of putting systems, distance capabilities, SAN/MAN [storage-area network/ metropolitan-area network] and having it be implemented on timely and effective basis.

How is the integration going?

That has been a really good story. These things are always from a CEO perspective, risky -- about what do you do and how it is going. We've had a little bit of practice with SANavigator, Nishan and Sanera and what we've found is that we have two cultures that are very much alike. If you think about this for a second, McData has been around for 23 years, CNT for 21, and in many cases, there are folks whose only job has been with the company. You've found a lot of grey-hairs and a lot of people that have the same mindset. That has been a good match. While we are a Denver-based company, we have a lot of Midwestern-based values and ethics; certainly they do in Minneapolis, where CNT is based.

The plan we put forward to Wall Street has been executed on very well. There's a bit of a sadness to it because it has caused the elimination of people's jobs. If someone from Wall Street asked me 'How's it going?' the elimination of jobs is a good thing. For the people that are being eliminated it's not so hot.

Where do you see the Fibre Channel switching market going?

On LAN, MAN, SAN, WAN, I see a tremendous integration all those technologies. It is about the network and the applications. The network is there whether it is a tiered network, a grid network or an information lifecycle management concept -- all of those are based on managing data freely and smoothly. In the last several years ever since [Sept. 11] it has been a revolutionary change. We couldn't move data out of Manhattan 50 miles on SANs at that time. Now we are talking about moving it around the globe. We are talking about running it through IP networks securely.

Cisco in Fibre Channel switching has grown from a zero percent market share in 2003 to a nearly 30 percent market share in 2004. What are you going to do to counteract that?

Two things. If you look at it from an installed base, CNT and McData have a 60 percent to 80 percent share. This is an important concept because most of the installed base is upgradeable, meaning new business chassis' are an important arena but also indication that you need to keep your technology rolling -- 1Gig, 2Gig, 4Gig Fibre Channel, IP blades, how do you handle virtualization. So when you look at the business model, upgrading and maintaining your installed base is critical going forward. It's almost like the razor blade business.

At the same time, you have the new chassis business. This has been a battle. We've done very nicely with switches, a main area for Brocade in the past. We've broken the 20 percent mark with the Sphereon line. Going with the Intrepid 6140 Director and i10k Director, we find our self in a position to grow back share.

With Cisco it's not a totally greenfield opportunity. Even though Fibre Channel is a new area for Cisco, it has a huge installed base in Ethernet switches.

There's no question about it. Cisco is an interesting one because they have presence. Whether it's them directly or through their channels, what you have is the ability of the organization to go in and open up a book and say, 'I've got something for everybody, do you want it?' A lot of companies are going to pride themselves on knowing they are the industry best and forcing Cisco to compete as generalists with people that are specialists at it.

The second thing is what do you do about channel conflict. Right now Cisco uses the storage companies like we do. Their reps are used to controlling the call and the customer. It isn't just a cakewalk to work through that customer minefield. The third thing is Cisco doesn't like to subordinate their brand. In our case, we will OEM products and let the storage companies take their brand forward.

You made the decision to keep the Intrepid 10000 over the CNT Ultranet MultiService Director (UMD). Tell me the rationale behind that decision.

The UMD was an outstanding product and it was not a decision made easily. The technical capabilities of the box, its architecture, some of the bladed advances they were doing related to distance were very appealing. In our case, the box only represents part of it -- the skill set and talent that developed it represented the rest. Our director-installed base was the largest in the world -- it is well over 20,000 units. Customers needed compatibility, so as we came out with the i10k we didn't want to have customers obsolete their equipment. The real decision wasn't about the hardware, but about the operating system that gives customers continuity in managing the product and include other devices into it.

So for UMD customers you will have an upgrade path.

Absolutely.

Recently Brocade expanded its horizons with the acquisition of Therion Software and an OEM agreement to market Tacit Network's wide area file services appliances. What are McData's plans to expand?

We don't disagree with the concept of what Brocade is doing. It depends on two factors: one is for us think of it from a CEO perspective -- we acquired CNT and are launching an aggressive number of products. We have taken a look at WAFS, virtual tape, etc. It probably wouldn't be prudent to take another acquisition at the moment and there are other ways to get into the WAFS world in terms of partnerships. Stay tuned on this one.

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