The key here is that the number is based on future expected sales of Andiamo gear, so Cisco is either pretty confident or pretty deluded about its chances. Either way, it is being forced to ante up on this gamble today instead of next year, when it expects to close the "acquisition" of Andiamo. Those options-related expenses are in addition to the $139 million it's already invested in Andiamo via debt "instruments" love that accounting lingo! (See Cisco Buys Andiamo and Cisco's Creative Andiamo Options.)
Even on the low side, Andiamo employees stand to make out pretty well that is, if Cisco meets its expectations. The unit has a headcount of around 300; the value of the options for that 27-month period would average out to at least $650,000 per employee. That's not necessarily dotcom-era largesse. But it shows Cisco will shell out for the Fibre Channel engineering expertise it needs to win in the market.
But just dumping lots of money into a venture doesn't automatically mean it will succeed. Just look at well-backed storage startups like Cereva or Zambeel that blew through millions before crumpling into smoking wrecks (see Cereva Sells Out to EMC, Zambeel Znuffed Out, and Zambeelians Reemerge at StorAD).
Cisco has yet to really earn its stripes in the Fibre Channel market. Yes, it has inked reseller deals with four major storage vendors EMC Corp. (NYSE: EMC), Hitachi Data Systems (HDS), Hewlett-Packard Co. (NYSE: HPQ), and IBM Corp. (NYSE: IBM) but there's obviously no guarantee these will result in substantial sales for Cisco (see Cisco Puffs Up Reseller Deals and EMC, Cisco Do the Deed).
And of course, it's probably still true that in the long run, Cisco views IP as the ultimate winner in the SAN space. As Luca Cafeiro, senior VP and general manager of Cisco's switching, voice, and storage technology group, said earlier this year: "Fibre Channel has a lot more potential today... but 18 months, two years from now, I don't know." (See Cisco Knocks 'Nerd Knobs'.)
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