IBM storage division scrambles in challenging market

As the head of IBM's storage group, she's charged with stealing away as much business as possible from EMC, the top seller of high-end storage systems and a company that analysts say has very little weakness.

A year after IBM introduced its high-end "Shark" storage system, Big Blue has gained modest success against EMC but still hasn't expanded much beyond its customer base, IBM and analysts say. But Sanford, head of a division with about 5,000 employees, is leading an aggressive charge to change that.

"We are going after regaining leadership," Sanford said in an interview with CNET News.com. "The feedback I get is that customers are glad to have us back in the game. There was no competition before with EMC."

Sanford took over the storage unit in January, and in September IBM elevated storage to the highest level in the corporate pecking order. The storage group now stands alongside the server group, the PC group, the global services group and a handful of others. Sanford reports directly to president Sam Palmisano and hobnobs with chief executive Lou Gerstner.

"It's put up or shut up time for IBM. IBM has promised a lot in the storage space, and up to this point has underdelivered," said Merrill Lynch analyst Thomas Kraemer. Delayed high-end software features for Shark "really killed them in the market."

But Sanford has fixed IBM business segments before, he added. "Linda Sanford has usually been put into tough businesses at IBM," he said. "She was in charge of S/390 (mainframe computers) when it was under siege from the Skyline mainframes from Hitachi. She turned that business around.

"That she's in charge of storage says that IBM really cares about it."

In March, IBM devoted $400 million to boosting its high-end storage business, adding 1,000 new employees.

Other companies, notably Hitachi Data Systems and its business partner Hewlett-Packard, probably disagree with Sanford's assertion that EMC has no other competition, but there's no doubt EMC is at the top of the heap.

"EMC's storage solutions command a premium price," Goldman Sachs analyst Laura Conigliaro said in a report today. And Merrill Lynch's Kraemer said in a recent note that corporate buyers report that IBM has to sell at a deep 50 percent discount from list price.

There's no question why IBM is so keen on storage: money and reputation.

Research firm Dataquest predicts high-end storage networks will be a $27 billion market in 2003, compared with the $2 billion it accounted for in 1999. But equally important is that storage systems are becoming a higher-profile element of corporate computer networks, and all major server companies are working overtime to show they haven't lost touch with their customers.

Sun Microsystems, for example, keeps on hiring more employees to try to sell its own storage products. In its most recent quarter, Sun boosted its storage sales force by 200 to 500 total.

IBM's plan for retaking the lead is to focus on industrywide cooperation to make sure all storage systems can work with each other, with storage networking hardware such as switches, and with all manner of servers, Sanford said. This utopian vision of complete interoperability contrasts with and undermines EMC's proprietary approach, she said.

"Data needs to be stored, managed and protected, but the more important requirement is to make that storage universally accessible. Universal access only comes through open storage networking solutions," she said.

"Customers are not going to take all their data from across their enterprise on different storage devices and move onto a single storage device," she added. "That's EMC's proposition. It's a very proprietary approach."

But IBM hasn't made much progress outside its stronghold, with the strongest Shark successes so far connecting to mainframe computers. IBM owns 90 percent of the market for these traditional workhorses of business, but it's not a growing business.

Roughly a third of Sharks are connected to mainframes, Sanford said. Another third are used in networks connected to mixed systems with mainframes, Unix systems and Windows servers. The last third are connected to networks without mainframe computers, she said.

Sanford counters that IBM is making progress outside the world of mainframes, the server line formerly called S/390 and now known as its zSeries servers.

"A lot of the growth now is in the non-S/390 world," she said. "There is a tremendous opportunity with the telecommunications and media industry," as well as with banking and the service providers that house large Internet sites.

Sanford acknowledged that Shark prospects have been hampered by the delay from March to Dec. 15 of high-end features that would have helped the product take a bite out of EMC. These functions, such as quickly copying data from one Shark to another or adding full support for Fibre Channel connections, would have helped IBM. Banks in particular require the copying feature, she said.

"The original plan was to deliver all the advanced features in March," she said. But having moved from IBM's global sales group and being aware of customer demands, she decided the features weren't ready yet.

"Customers had a raised level of expectation as relates to availability and stability and quality of products. I decided to delay the functionality so we could extend and intensify the testing of those new functions," she said.

While IBM certainly hasn't dislodged EMC, the Shark effort is showing some progress. IBM shipped 50 percent more storage capacity last quarter than in the year-before quarter, Sanford said. Three months before that, the growth was only 30 percent year over year. In the last year, IBM shipped 4,000 terabytes of storage capacity, roughly 400,000 times the storage space of a desktop PC.