Cisco Systems Inc. (Nasdaq: CSCO) has officially acknowledged that its partnership with Brocade Communications Systems Inc. (Nasdaq: BRCD) is over.

In a statement emailed to Light Reading's sister publication Byte and Switch today, Cisco confirmed that the deal has been terminated. This follows the Byte and Switch story last week on the breakdown of the partnership between the two industry giants (see Cisco SAN Plans Get Tangled).

"As a result of discussions in the past several weeks, Cisco and Brocade have mutually agreed to pursue separate product development paths for the Fibre Channel over IP (FCIP) technology segment," the Cisco statement says. "The two companies reached this decision for business reasons." Neither company would comment further on this point.

Cisco and Brocade have spent a year working on an FCIP blade for Cisco Catalyst 6000 switches to connect FC SANs over wide-area IP networks. The blade was suppposed to connect to all FC SAN switches, but Brocade engineered it to connect only to its switches, infuriating Cisco.

Now the two firms are in a race to build the first next-generation SAN switch -- Brocade on its own, and Cisco via its Andiamo Systems Inc. spinoff (see Cisco Owns Up to Andiamo and Andiamo: Getting Warmer?).

U.S. Bancorp Piper Jaffray senior analyst Ashok Kumar, a fierce critic of Brocade, believes its breakup with Cisco is a weak attempt to protect its Fibre Channel island as long as possible. In a note to investors, Kumar writes: "It appears that Brocade finally does understand how big a threat [Cisco] is, and now they are trying to find enough room in their shell to crawl back in." He adds, "Fibre Channel is just a way to connect systems and storage together; it is not a fundamental part of what makes storage work. As much as Brocade wants to make it seem like their API will make them an integral part of storage functionality -- it won't, in our view. It's just plumbing, and there is a lot of other good plumbing in the world, such as Ethernet and TCP/IP. Cisco realizes this."

Kumar criticizes Brocade for not being willing to work with Cisco. "We are in a world today where co-opetition [sic] is expected," he writes. "Companies that are capable of holding their own in large and growing markets normally are not threatened by working with a competitor. In general, market expansion is seen as a greater good than protecting one's turf. This is not how Brocade appears to work, however."

Cutting off the partnership with Cisco, Kumar believes, will "create more of an island around Brocade Fibre Channel SANs than ever before." He concludes, "Perhaps Brocade believes that customers do not want multivendor best-of-breed solutions... Maybe Brocade has better market research than the rest of us."

Cisco officials say the company continues to view FCIP as an important technology and remains very much committed to supporting it: "Cisco will continue to pursue several entry points into the nascent FCIP market, using any combination of the following strategies: partnerships, acquisitions, or internal development. There are no definite timelines yet, however."

As far as the partnership goes, the two firms are doing their best to cover up the break. "Cisco and Brocade have and will continue to work together on complementary technology projects that make best business sense for both companies," says Cisco in its statement. [Ed note: In other words, not just when it suits Brocade!] As examples, Cisco cites the joint interoperability testing of Brocade solutions with Cisco's ONS 15540 metro DWDM and the Cisco SN 5420 Storage Router.

Brocade officials tell Byte and Switch they have nothing to add to Cisco's response.

In early afternoon trading Thursday, Cisco was down 4.57% to $14.84, while Brocade was up slightly 2.44% to $23.05 a share.

— Jo Maitland, Senior Editor, Byte and Switch
http://www.byteandswitch.com