Good questions all. Here’s my early morning take.

FC is the Monster Cable of high-end storage. It is the high-margin interconnect that makes a great add-on sale. That is the key.

FC is far from dead, yet I see an approaching tipping point. IT hardware is largely consumer (i.e. volume) driven today, a trend storage companies have long resisted even while complaining about it. FC is not a consumer technology, so it is vulnerable. Ethernet is - my little laptop has Gig-E on it - so it has volume and a bunch of folks chasing 10 Gig-E. Plus a rapidly swelling demand for iSCSI that is driving all kinds of investment, especially by customers who are learning about it. So my forecast for FC is, as I said above, a long decline, beginning in 2-5 years, not a collapse.

So why is the DoJ is interested? Well, they’ve scored a mighty big success on the DRAM price-fixing scam, so I think they kind of like storage. FC certainly doesn’t look like it has followed the classic network technology pricing curve - the margins are rich and price declines relatively slow - and there are just a few suppliers and a few OEM buyers, all of whom are well positioned to keep prices and margins artificially high. So if someone is flouting the Sherman Act, this is a good place to look.

Personally I think it is more likely that everyone involved decided that FC would never be a consumer volume technology, so they all independently decided to keep it a lower-volume, higher-margin product. That suits the array vendors, who are also the big FC OEMs, and isn’t a big problem for the large enterprise data centers either, since FC is a small part of their total capex. So the DoJ sees smoke, is thinking fire, and won’t find any.

Robin

My opinion is that Brocade/McData lack pricing power in light of who their OEMs are and the fact that Cisco is breathing down their neck. Also, it seems like QLogic is making a push into the director switch segment also. Based on this, I was surprised to see the DoJ request additional information regarding the merger.

Any thoughts on what could be going on here?

That’s why I believe FC is in the process of losing to 10Gb Ethernet. Not because of technology, but because the industry has been shortsighted. Ethernet has compelling economics; FC much less so. Those economics are largely the result of the decisions of the players.

Yet this is even bigger than the storage companies. No one smart will buy EMC - they are in the process of putting themselves out of business. Networks are open. Storage is closed. Open will win. Not overnight, but it will. Network economics are driving it.

I agree with you that the Brocade/McData merger is not strategic, but I don’t agree with your comments on fibre channel in general. The technology has proven extremely useful to many corporations in solving problems connecting storage and has grown into a $2B plus industry. The biggest industry problem is the fibre channel switch vendor’s OEM business model with the top six storage vendors who monopolize 75% of the storage business. Imagine if you could only buy a router or Ethernet switch from the local telephone company. I’m guessing it will take an unusual business transaction, like Cisco buying EMC, Sun or HDS buying Brocade, not a technology innovation, to change the industry.