Fibre Channel: Knocking on the Door of Midsized Businesses

For the past decade, Fibre Channel has been seen as the king of the mountain of storage networking technologies. As the foundation for Storage Area Networks (SANs) and designed to work with the highest-capacity, most technologically advanced storage systems, Fibre Channel has become the technology of choice for data centers in many Fortune 3000 enterprises. By some estimates, there are perhaps 100,000 SANs worldwide that use Fibre Channel as the interconnect technology for moving data from host servers to disk and tape storage devices quickly and securely.

However, Fibre Channel technology might soon break out of the high-end market segment and emerge as a viable alternative for midsized enterprises. A conflux of three factors is driving the potential broadening of Fibre Channel's reach. First, according to the latest round of market research numbers, the technology turned in a disappointing performance in first quarter 2004 and continues to face severe pricing pressures. Clearly, vendors have an incentive to look for ways to expand beyond their traditional large-enterprise markets. Second, some industry observers argue that midsized businesses--companies with revenues from $100 million to $400 million--have been poorly served by the storage industry. Third, and perhaps most significantly, the Fibre Channel Industry Association (FCIA) recently endorsed a new class of hybrid disk drives that combines a Fibre Channel interface with a low-cost-per-gigabyte, high-capacity drive. The new storage devices cost significantly less per gigabyte than those usually associated with Fibre Channel.

First, the bad news. According to a study recently released by the Yankee Group, the Fibre Channel SAN component market grew only modestly in first quarter 2004, hitting $434 million in revenue. Although more than the $424 million the market sector generated in first quarter 2003, the 2004 revenues were well below forecasts. In fact, according to the Yankee Group, most Fibre Channel SAN vendors reported revenues at or below forecasts, with the exception of Cisco Systems, which reported 20 percent sequential growth. And even at Cisco, the growth rate has slowed.

The Fibre Channel SAN component market is divided into three categories: switches, directors, and host bus adapters (HBAs). Switch revenue plunged to $120 million in first quarter 2004, well below both forecasts and the $145 million generated in the first quarter last year. Revenues for the director segment climbed to $144.3 million, above forecasts and above 2003's per-quarter average of $117.7 million. Yankee Group analysts attribute the gains to large businesses upgrading and consolidating existing SANs. Although below forecasts, the HBA segment showed modest growth, generating $168.9 million in first quarter 2004 compared to 2003's per-quarter average of $161.4 million.

The main culprit for the disappointing performance in the switch and HBA categories, according to the Yankee Group, was pricing pressure. In an effort to reach smaller enterprises, vendors slashed prices. That action reveals a simple, hard truth: Fibre Channel SANs have been too expensive for many midsized companies. Assuming that companies spend approximately 1.5 percent to 4 percent of their revenue on IT, midsized companies have annual IT budgets ranging from $1.5 million to $16 million. A sophisticated, high-capacity SAN, however, can cost $2 million or more. Even less-comprehensive implementations can easily reach into the mid-six-figure range. That price tag has often been too high for many midsized companies even though they want the functionality, robustness, speed, and security that Fibre Channel offers.

Part of the solution might come from a new class of disk drives conceived by Hitachi Global Storage Technologies, HP, and Seagate Technology and endorsed by the FCIA. The new drives combine a Fibre Channel interface with high-capacity, relatively low-cost disk drives. Customers can combine these drives with high-performance Fibre Channel drives in the same drive enclosure, letting end users segment data between lower-cost drives and high-performance Fibre Channel drives and reducing the system's overall cost by storing noncritical and less frequently accessed information on less expensive drives.

In April, HP announced that it would be the first vendor to offer a 250GB, low-cost Fibre Channel drive, called a Fibre Attached Technology Adapted disk drive. The drive should start shipping soon, and solutions based on the drive are expected early next year. Last month, the FCIA endorsed the approach, which is supported by a broad range of companies, including Emulex, Finisar, PMC-Sierra, and QLogic.

In the final analysis, storage networks are attractive to companies of all sizes. The emergence of Fibre Channel SAN-based technology at a price that's affordable for midsized businesses could offer an appealing alternative in that market segment.

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