The words of Nora Denzel, appointed leader of Hewlett-Packard's storage division in July, indicate just how far storage has come: "HP is transforming itself from a server company that happens to sell storage to a storage company that happens to sell servers," she said in an interview with CNET News.com. That's a brazen message for a company with billions of dollars in annual server sales.
But companies are treating storage equipment as a separate system from the servers that tap into the data. In the last year, the growing importance of storage has boosted storage specialists' fortunes, spawned a host of start-ups, and shaken up the organization charts of the world's biggest computing companies.
In September, IBM elevated its storage group to the same level as servers and global services, the highest level in its corporate structure, and named turnaround specialist Linda Sanford to whip its storage business into shape.
These moves highlight the increasing competitiveness of the storage business and the growing threat against storage specialists EMC and Network Appliance. HP, Hitachi Data Systems, Sun Microsystems, IBM, VA Linux Systems and Dell Computer are launching new products against EMC and NetApp, but for the first time, NetApp and EMC have begun competing with each other in earnest.
The storage industry is wrangling with two questions about the future: What will become of a high-end technology called storage area networking (SAN), and will companies buy storage equipment themselves or rely on outside companies called storage service providers (SSPs)?
For years, high-end companies have been advocating SANs as a way to centralize storage devices in a special, high-speed network separate from the rest of corporate computer networks. While ordinary computer networks typically are based on the Internet Protocol (IP), SANs are based on a communication technology called Fibre Channel.
In 2000, existing Fibre Channel network hardware makers such as QLogic, Brocade Communications Systems and Gadzoox were joined by two new publicly traded companies. EMC spinoff McData went public in August, while Inrange's IPO came in September. Not everyone fared well, however. Ancor was acquired by Qlogic, and Gadzoox stock plummeted on financial problems and executive changes.
SANs work reasonably well at their intended purpose, but they've been hampered by weak standards that have meant that many devices--network switches, disk storage systems, SAN adapter cards in servers--have been unable to communicate with each other unless laboriously tested.
"We can put a solution on the floor that will take care of the problem. EMC can too. The problem is they can't talk to each other," Dave Roberson, chief operating officer of Hitachi Data Systems, said in an interview.
Added Dick Watts, chief executive of storage start-up Scale8, "There was some sense of disappointment in how well the problems have been solved in SANs."
Ultimately, standards will emerge, whittling plump profit margins, Denzel predicts. Though EMC has been one of the prime beneficiaries of those margins, EMC chief technology officer Jim Rothnie claims to welcome the advent of standards that the company says will allow it to more than make up in volume what it loses in per-unit profit.
Undermining Fibre Channel
But while industry groups such as the FibreAlliance and Storage Networking Industry Association creep toward Fibre Channel SAN standards, the use of ordinary IP networks is emerging as a new foundation for SANs. A year ago, the idea was somewhat radical, but now it's taken for granted, Roberson said.
Using IP for SANs is constrained by network speed, missing standards, and the fact that the network languages aren't set up for sending storage information. But in 2000, storage companies began addressing those points.
In December, an effort to merge SANs and IP gathered the support of more than 20 companies that backed a collection of standards for storage over IP. Among them are IBM, Dell, EMC, Sun, StorageNetworks and Nortel Networks. In addition, 10- and 100-gigabit-per-second Ethernet networks are on the way.
Nishan Systems, Pirus Networks and 3ware all are betting on the transportation of storage data over IP networks. Nishan raised $50 million from Sun, Dell and others, while 3Ware raised $43 million in funding from venture capitalists and strategic partners, and Pirus attracted $10.2 million.
Another advance for storage will be the arrival of InfiniBand, a high-speed connection technology expected to arrive in 2001 that will speed the connections between servers and other devices. In December, several storage companies cemented that idea by joining a high-level InfiniBand governing committee.
Take a load off
StorageNetworks epitomizes the investor hype attracted by storage this year. The company, the giant of a new class of storage service providers, raised $243 million when it went public in June.
StorageNetworks runs data centers packed full of storage equipment, unburdening customers' computer administration staff. The company has attracted dozens of customers, including BestBuy.com, Playboy.com and Lycos, and its services are resold by big-name computer-hosting companies such as Exodus Communications.
Hitachi is a big believer in storage service providers, which have grown to account for about 10 percent to 15 percent of the company's revenue, Roberson said. Hitachi storage systems are used by SSPs including StorageNetworks; StorageWay, which raised $36 million in September; Sanrise, still in "stealth mode"; ManagedStorage International, which raised $50 million in September; and StorageASP.
However, U.S. Bancorp Piper Jaffray analyst Ashok Kumar thinks SSPs are doomed to failure. "Companies are unwilling to place their information jewels in external data centers," he said in a report Thursday. In addition, SSPs need much faster networks before locating data remotely becomes feasible.
But Roberson believes SSPs still have their appeal, even for big customers. Merrill Lynch, for example, uses Hitachi storage systems in its own operations and in operations it outsources to SSPs, he said.
And there are areas of specialty SSPs can provide. Scale8, for example, focuses on the delivery of streams of audio or video information, Watts said. The company has data centers in California and Virginia and will add more in London and Tokyo in the first half of 2001, he said.
Jack be nimble
The situation of Hitachi Data Systems is representative of the overall storage industry. While the company is benefiting from solid revenue growth, it must deal with strong competition, a complex network of alliances, and standards for existing and emerging technology.
Customer demands are changing rapidly. Customer storage demands double each year, and product lines undergo major changes at about the same pace. Hitachi introduced a new high-end Lightning 9000 series storage in June and began selling it in September. In the last year, though, customers using Hitachi systems to provide storage to IBM mainframes dropped from 50 percent of revenue to a paltry 20 percent.
But for those who can ride the bucking bronco, money is to be had.
Hitachi Data Systems revenue is expected to increase from $900 million for the quarter ended March 2000 to $1.5 billion for the quarter ending March 2001, Roberson said. Between 70 percent and 80 percent of the company's revenue is from its high-end storage products--systems HP sells under its own name with its own improvements and which analysts generally agree to be the strongest competition to EMC's Symmetrix product. About a third of the high-end revenue comes through HP's sales, Roberson said.
One thing companies are discovering is that a lot of the elements that make storage hardware worth buying turn out to be software. IBM's high-end Shark only this month got its full complement of software features, while EMC has been working to cement its lead by acquiring software firms. Sun adopted the same strategy when it bought HighGround in December.
"We spend more money on software than on hardware," EMC chief executive Mike Ruettgers told CNET News.com in October.