Posted By Industry Perspectives On August 27, 2013 @ 2:45 pm In Industry Perspectives | No Comments
Dan Crain is CEO of Whiptail , a provider of flash storage solutions, based in Whippany, New Jersey.
Over the last few months, two diametrically opposed data points about the state of the storage industry were published by credible sources, in well-known, trusted journals.
John Webster – one of the most intellectually honest and rational storage industry analysts I know – published a piece featured on Forbes.com titled, “No New Storage in 2013.” He cites discussions with various IT executives about their 2013 intentions to acquire additional data storage equipment, and concluded that there will be little spending on new storage this year.
On the other hand, Information Week posted a story citing data from their “Information Week Outlook 2013” survey of IT executives, citing that 44 percent of respondents said upgrading their storage infrastructure was a top priority for this year.
So which is it, up or down, and where do we go from here? Let’s examine some additional factors.
The earnings reports of the top five sellers of commercial and enterprise storage systems – IBM, EMC, NetApp, HP and Dell – show some large declines in storage system sales over the past four consecutive quarters. This would clearly support Mr. Webster’s thesis. The declines range from a 19 percent year over year contraction, to barely flat sales. These somewhat shocking declines in storage systems – large, complex storage arrays that store nearly all the world’s important data – revenues, from the combined concentration of market share in the industry is exactly the opposite of what’s been happening for nearly a decade and a half.
The perennial discussion of the “data explosion” has been a reliable leading indicator of constantly rising storage system sales at these large technology firms, as well as numerous small ones. Indeed, data storage is one of the few remaining segments of technology manufacturing that supports both private and publicly traded “pure play” companies – firms that derive most of their revenue from sales of one primary product type – such as NetApp and EMC. Most of the other large technology firms have diversified substantially beyond their original core business. And to be fair, while EMC does offer a large selection of products to their customers, data storage devices are still a large part of their revenue and company identity.
According to IDC, the data storage business will have an estimated total market value between $90-$100 billion this year. That is enormous! The technology is not for the faint of heart though – M&A values tend to be very large, and there are limited quality properties in the market at any given time. Because storage is one of the most complex parts of the computer industry, it has resisted the trend toward rabid commoditization due to the barrier of entry being high. We’re not talking three college kids building a smartphone app at the local coffee shop here. These storage systems are designed to make sure the data is always available.
So where’s the truth? Is the industry shrinking, growing, or flat? In the spirit of public clarity, I’d like to suggest that the answer is yes, maybe and no. Will the industry have another down year, as John Webster suggests, or will a very large group of customers execute large transitional storage strategies as the Information Week survey suggests.
I think the traditional non-innovative storage industry will receive the brunt of Mr. Webster’s “No New Storage” thesis, as we are already witnessing a dramatic shrinkage of the top 5 providers market share. And the reasons for this are simple. The Data Storage industry born in the 1950s has plateaued. Today it is dominated by a handful of players who are struggling with several issues including:
So what trajectory will the industry take? We are seeing a new generation of data storage technology from companies that are pioneering new ways to think about “Big and Fast Data.” The next several years will finally be transformative for the data storage business. New entrants will rise, and established suppliers will continue to wither.
It might be the most exciting time in this industry since Professor Patterson’s team brought us the ideas that created the now aging generation of storage machines that house the worlds data more than 30 years ago.
The storage industry has a huge market potential, but the opinions on where this complicated market is going vary widely. Where do you think the market is going? Will it reach its $90-100 billion value that IDC predicts, or will it fall short?
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