In morning trading, McData's stock jumped up 8 percent, to $14.35; Brocade's was up 1 percent, to $6.14.
Brocade appears to be responding to McData's gains by lowering the price of its 16- and 32-port SilkWorm switches, Ader notes. But he says the Sphereon 4500 has a lower-cost architecture with a single ASIC able to support up to 24 ports, compared with Brocade's ASICs that support just 8 ports. "We do not believe Brocade has enough pricing room to foil McData gains," Ader writes.
On an annualized basis, Thomas Weisel estimates that McData could steal $32 million in revenue away from Brocade. In a more aggressive model, the firm puts McData's revenue gains at $52 million.
Meanwhile, Cisco Systems Inc. (Nasdaq: CSCO) -- which is now in the process of actively ramping up sales efforts with its MDS 9000 Fibre Channel switches -- poses a greater threat to Brocade than to McData, says Thomas Weisel (see IBM Slashes Cisco MDS Pricing and HP Moves Hard on Cisco).
"We expect McData's strong product momentum in the fabric switch segment and price/performance leadership to enhance its ability to compete against Cisco," Ader writes. Brocade, on the other hand, relies on HP and IBM, which together make up 55 percent of Brocade's revenues -- and the danger is that Cisco "may be able to make meaningful inroads" with both of those OEMs.
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