August 20, 2002 7:05 AM PDT

Cisco opens its doors to net storage

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Cisco Systems is making its move into the network storage market, announcing plans Tuesday to acquire privately held Andiamo Systems in a deal worth as much as $2.5 billion.

Cisco already owns a stake in Andiamo and disclosed its right to acquire the company in a Securities and Exchange Commission filing earlier this year. At the time, it had already paid $53 million of an earlier $84 million commitment to Andiamo, according to the filing.

Andiamo makes storage area network (SAN) products, a market that is seen as a key growth area for Cisco and the rest of the networking market. The move could also help Cisco stay competitive with companies such as Brocade Communications.

According to Cisco, the final price of Andiamo will be determined primarily by the company's sales in the three months before the deal closes. Cisco, the exclusive manufacturer and distributor of Andiamo products, said the net purchase price could range from zero to $2.5 billion.

The acquisition will coincides with the launch of SAN products from Cisco and Andiamo that support Fibre Channel, iSCSI and Fibre Channel over IP.

Fibre Channel is the standard used by high-end storage networks. iSCSI is an Internet version of the SCSI hardware technology used to making block-level transfers over Ethernet and is popular with small and medium-sized businesses and workgroups. Fibre Channel over IP is another protocol aimed at remote storage-area networking connectivity.

Cisco's first MDS 9000 products will become available in the fourth quarter, with the full line expected to come out in the first half of 2003. Prices will start at $29,995. Cisco said telecommunications giant Sprint is evaluating the products and may consider launching them.

Cisco also said that it has begun working with a number of other networking companies to ensure interoperability for its new products. The new product line will feature embedded fabric management and open APIs (application platform interfaces) so that it can be integrated with other SAN management and network system management software.

Specifically, Cisco said it has begun working with Adaptec, ADIC, BMC Software, EMC, Emulex, Hitachi Data Systems, IBM Tivoli, JNI, Netreon, QLogic, StorageNetworks and Veritas Software to create interoperable products.

"With Andiamo's technology, Cisco will be able to offer enterprise customers the same levels of network scalability, performance and manageability to storage networking that Cisco pioneered in LAN and IP networking," Cisco Chief Development Officer Mario Mazzola said in a release.

Cisco CEO John Chambers added that the company has "the potential to be the No. 1 or 2 player" in the storage networking market.

But analysts said that could take some work--especially on the compatibility front. Cisco said it plans on industry standards, but analysts said main rivals might resent the company's encroachment.

"Cisco is not used to being the eager up-and-comer, and the longer it takes them to realize they are a follower and not a driver in storage, the longer it will take" the company to become a leader, Ashok Kumar, analyst at US Bancorp Piper Jaffray, said in a research note.

"Even though Cisco has a large and effective sales force, they are entering this business from a back-row position, starting from scratch," Kumar added. "Compatibility within the storage industry always seems to be more difficult than expected and is usually only solved after paying serious time dues."

 

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