Rapid increases in system size combined with the popularity of multi-core processors is placing increased pressure on interconnect infrastructure to accommodate higher bandwidth and lower latencies. This trend is particularly noticeable in high performance computing (HPC) top500 use cases where InfiniBand (IB) is the performance king and is vying for the “top dog” position with Gigabit Ethernet.
Figure 1 – Performance Share of Interconnect Fabric in the Top500 Supercomputers
However HPC is not the only market segment adopting Infiniband. Commercial customers, particularly those deploying financial services applications such as low latency, high frequency trading are more aggressively consuming Infiniband technology to support business lines.
Leading Indicators
This trend can be seen in the financials of Voltaire, a company that sells scale out data center fabrics. Voltaire has a meaningful share (about 30%) of the Infiniband switch market but claims a much higher penetration (about 50%) within the Top500, which are the most demanding and potentially profitable customers. As well, its commercial Infiniband market share is even higher (about 90%) according to the company and other sources I’ve spoken with on Wall Street. This is directly attributable to the strong relationships the company has with IBM and HP.
Why do I care about Voltaire? For the same reason that when I followed disk drives I cared about companies like Komag and Applied Magnetics—they are leading indicators. I started paying attention to Voltaire about a year ago when in the turmoil of the market a financial analyst friend of mine said he thought the company’s stock was going to rebound (it was trading at under $3 at the time). I don’t pick stocks anymore but when I started IDC’s Wall Street business in the early 1990’s I became fascinated with the way information flows in financial circles and learned that Wall Street tends to have a different “angle” on companies than industry analysts. So I’ve been watching Voltaire to see what the market is telling me.
The market is being cautious. The company got crushed in early 2009 like many others but has been on a steady rebound since. Revenues doubled in the first quarter compared to a very soft March quarter of 2009 but the company continues to lose money. Wall Street is concerned about market risk in general and Voltaire’s expense levels. But to me this is an indicator that management has confidence and its model has operating leverage as revenue rebounds. Notably, Voltaire trades at around 1.4X revenue while supplier/competitor Mellanox trades at more than 6X revenue with a whopping market cap of nearly $750M as of yesterday. Voltaire’s valuation is under $100M and those that are bullish on Voltaire smell upside potential.
Of Market Shifts and Arms Dealers
Lately we’ve been writing about the Stack Wars. In this new world of virtual co-opetition, competitors are suppliers and strange relationships of convenience are being formed. Underpinning these trends is virtualization and the emergence of cloud computing and, in the data center, private clouds. Infiniband is poised to take a piece of the cloud business specifically for low latency high performance applications in financial services, government, life sciences and a rebounding manufacturing sector.
In this specific space we’re seeing Voltaire, a supplier to HP and at one point the beneficiary of a relationship with Oracle/Exadata lose that business to Mellanox because Oracle popped in Sun replacing HP in Exadata version 2. In a further development today, Voltaire has decided to now OEM adapters from QLogic as a second source to Mellanox and hedge its bets. In addition to HP, Votaire’s OEM’s include IBM and Fujutsu among others. As well, Voltaire recently announced a design win for IBM’s SONAS solution.
We saw a similar dynamic with HP/Cisco/Brocade/QLogic as Silicon Angle’s John Furrier pointed out when he broke the story that Cisco was dumping HP as a preferred partner. Subsequently HP dumped Cisco as the second source to Brocade and picked up QLogic, essentially funding QLogic’s entry into the switch market and putting Brocade on notice that there needs to be more competition in the space.
Pure play technology suppliers (aka straight Arms Dealers) such as QLogic are getting harder to find. As it pertains to Infiniband, I’ve been wondering how QLogic was going to compete and grow in this space and the Voltaire deal is another indicator. Voltaire joins HP, IBM and Dell in OEMing QLogic InfiniBand adapters. The common theme amongst all these vendors is that they are becoming increasingly focused on the cloud generally and HPC cloud specifically– which is the higher performance sister of more mainstream private cloud deployments.
In this new era of cloud computing and converged infrastructure, partners are becoming competitors at an increasingly rapid and alarming pace, as outlined by the examples above. Neutral arms suppliers such as QLogic are in a position to benefit as they pose no competitive threat and primarily exist to provide enabling storage and networking technology in the war for the next generation of data centers.
Bottom Line
Virtualization and cloud computing are creating markets shifts that are dramatic. New alliances are being forged to adapt to changing market demands and industry forces. Customers are insisting that vendors stop selling in silos and are forcing strange bedfellows. VMware/Cisco/EMC/SAP and HP/Microsoft are examples of alliances designed to compete with the broader portfolio of IBM.
Underneath these industry giants there is a ripple effect occurring in the supplier base. Voltaire OEMing Infiniband adapters from QLogic is just the latest move in what I expect to be a multi-year progression of defections from prior partners and new relationships being struck up in a bid to raise the competitive stakes.
As I’ve said many times recently, the data center is getting very interesting.
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