Will IBM's new "Shark" sink or swim?

Three years ago, IBM introduced its first Enterprise Storage System product, code-named Shark, in an attempt to rebuild a market it had almost totally ceded to rivals EMC and Hitachi Data Systems.

But Big Blue's timing turned out to be bad. Sales for storage systems attached to servers plummeted 19 percent from $16.3 billion in 2000 to $13.3 billion in 2001, according to market research firm Gartner Dataquest, as spending for dot-com expansion and the recession curtailed spending.

This time, however, IBM might do better, partly because the company has fixed some early Shark problems. With the new line, IBM has overhauled the design, improving everything from data transfer capabilities to cache size.

"Shark is due for a refresh. The timing couldn't be better, as far as I'm concerned," said John Webster, a storage analyst at the Data Mobility Group. Companies have been filling up all the extra capacity they bought before, but during the fourth quarter, those companies will "realize they're finally running thin and start acquiring again."

High-end storage systems such as Shark, Hitachi's Lightning and EMC's Symmetrix are increasingly important to corporate computing.

The refrigerator-sized systems, with capacities about 1,000 times that of desktop computers, are used to store precious company data such as bank balances or product inventory. The systems can cost more than $1 million and include sophisticated features to help withstand enormous volumes of data transactions, power failures, faulty components and natural disasters.

Several years ago, storage systems were little more than a feature of the servers that ran programs such as database software for logging phone calls or charging credit cards. Now, storage systems often stand alone, running their own data protection features and connecting to multiple servers with special-purpose networks.

EMC, which sold storage systems to work with any company's server, capitalized on the trend toward storage system independence while server companies continued to sell less sophisticated products.

EMC still is the market leader, while Hewlett-Packard and Sun Microsystems, the other two large server companies, have started selling versions of Hitachi's Lightning storage system. EMC profit margins crashed last year and the company has been forced to lay off thousands of employees.

IBM is pouncing on this comparative weakness. "We honestly think EMC is not a competitor at the moment with their system and strategy. We don't see them in the market," said Walter Raizner, general manager of IBM's storage products. "The factor we're working against now is Hitachi."

Not quite, more independent observers say. Hitachi has the technology edge right now and has better withstood the spending slowdown, but EMC still has the dominant market presence.

"EMC is very competitive at the high end," said Aberdeen analyst David Hill. Shebly Seyrafi, who closely monitors storage for A.G. Edwards, estimates EMC has 45 percent of the high-end storage market to Hitachi's 35 percent and IBM's 20 percent.

EMC last week announced it had lured away Mark Lewis from Hewlett-Packard to become chief technology officer. Lewis, an executive who had led storage work at Compaq Computer and Digital Equipment before that, is a good match for EMC's needs.

"We don't think EMC could have come up with a better scenario for CTO even if it had three magic wishes," said Salomon Smith Barney securities analyst H. Clinton Vaughn in a research note. "We view Lewis as one of the industry's true heavyweights."

Added Webster of Data Mobility Group: "I think Hitachi, by virtue of the fact it's got biggest, baddest box, is going to try to command a premium. The most aggressive competition I see coming is going to be between IBM and EMC."

Sharpened Shark teeth
With the Model 800 and the Model 800 Turbo, "We've upgraded every piece of Shark, from the internal data transfer capability to the microprocessors, drives, and cache size," Raizner said. The new systems cost about $250,000 for lower-end models up to $1.5 million for product with more capacity, software and high-speed cache memory.

Shark, built around the same Power processors inside its pSeries Unix servers, can take advantage of some software and components used in those other products. The new Shark is one processor generation behind the current Unix servers, but a next-generation Shark coming in 12 to 20 months will incorporate the highly regarded Power4 processors used in IBM's top-end p690 "Regatta" Unix servers, Raizner said.

The new version addresses one weakness of Shark systems by adding support for a speedier version of RAID (redundant array of inexpensive disks) technology used to pool several hard drives. Shark supports RAID 10, which lets data be simultaneously "mirrored" on different collections of hard drives to protect against data loss while "striping" it across different drives at the same time to speed up how fast data can be written.

The system also comes with some features from IBM's eLiza program to let computing systems run themselves without as much human intervention. For example, Raizner said, when there's a problem in the 64GB of cache memory in a Model 800 or 800 Turbo, the system first will try to bypass the problem area. If that doesn't work it will connect to an IBM database to try to find a fix. After that, it will take the step of requesting a technician to fix the problem.

The new Sharks also are faster than earlier products at sending a copy of data to a remote Shark so data is protected in case of a disaster or power failure. Also improved is the speed at which it takes a "snapshot" of the storage system's files, a useful feature for backing up data.

The new Sharks also include faster hard drives with 18.2GB or 36.4GB capacities, though analysts are awaiting the day IBM will switch away from its Serial Storage Architecture (SSA) drives to the more modern and widely used Fibre Channel standard.

"This is the most significant array announcement they've made in the last three years," Webster said. However, he added, the upgrade is relatively simple: "I don't see anything architecturally significantly different in this device vs. the earlier Shark."

EMC believes Shark is all but dead in the water.

"It appears they've made only extremely minor changes, and they've ignored areas where the product continues to have major issues," said Ken Steinhardt, director of technology analysis for EMC. For instance, he criticized the IBM design for lacking sufficient memory protection to keep up with high-data traffic.

"What we have on our hands here is a dead shark," he said.

IBM has indeed had some problems, including delays in delivering crucial Shark software and initial reliability problems.

"The original Sharks were horrid. They simply didn't work in any meaningful way, so IBM gave them away," said Steve Duplessie of the Enterprise Storage Group.

But IBM has some advantages over competitors.

Bundle of joy
The company, for example, is able to bundle Shark sales with related server and service deals. IBM is the largest server maker, particularly when it comes to high-end servers costing hundreds of thousands or millions of dollars, so its storage sales force can piggyback on other deals.

"What they are very good at doing is wrapping Sharks in with (server upgrades) and software and services," Webster said. "They wrap a two-, three- or four-year lease arrangement around the whole package such that it's difficult for a customer to pull those packages apart and say, 'I want to take the Shark out and put in a Hitachi box.'"

IBM still must improve its technology if its storage is to succeed on its own, though.

"IBM's ability to bundle is a key advantage, but it still needs a stronger high-end RAID product," Seyrafi said.

And a fourth-quarter spending increase, while welcome, would not be a miracle cure. When customers start buying again, "There are going to be lots of competitors for those deals," Webster said. "I'm sure users are going to be playing one vendor off against the other."

IBM is prepared for such a scenario. "We are certainly pricing aggressively where we need to do that," Raizner said, but only to a point. "The storage business (at IBM) does not lose money and hadn't lost money in the past."

The aggressive stance has been working elsewhere in IBM, helping the company to win Unix server share from Sun and HP, Intel server share away from Dell and HP, and database software share away from Oracle.

And in storage, IBM had to start almost from scratch.

"When we came out with Shark, we were absolutely nowhere in terms of market share," said Raizner said. IBM storage systems were rarely used even in Big Blue's "home base," attaching to its zSeries mainframes. It would be like General Motors failing to sell cars in Detroit.

Hill, overall, is impressed: "It's been a very effective comeback."