Investors should take a new look at the systems storage
market, as a host of new vendors are fueling trends that should keep the
group primed for growth.
Last November, I explored many of the emerging trends in the market. There are many positive aspects about systems storage, the
hardware and software technologies that enable the storage of large data
sets. The first positive point is growth--the market for these
is expected to grow over 35 percent to $15 billion this year. I forecast
this growth rate to continue for the next 3 to 5 years.
The Internet is a driving factor in the market, as the growing
infrastructure to provide increased communication, content, and e-commerce
requires significant growth in storage systems to support increased data.
Streaming media--potentially a huge market in the future--makes these
storage requirements even more of a priority going forward.
Most storage technology is connected directly to a server, and is chosen
for reliability, connectivity, performance, and cost. EMC remains the
market leader in this segment, IBM a not-too-distant second, followed by
other large computer companies such as Hitachi, Sun Microsystems, and
The new developments in the storage market are a result of the changing
demands of storage customers, coupled with innovation and new competition
that blossoms from such a large, high-growth market.
On the customer front, Internet-based business growth is putting a premium
on scalability and reliability, making these features more important than
price. Who doesn't know of an example of a Web-site that was overwhelmed
and ran out of both computing power and storage space? The
outages of Net firms such as
eBay highlight the importance not just of backing up data, but of being
able to restore it quickly--a feature that is now a criteria when
purchasing high-end storage technology.
The increasing importance of storage, both as an element of traditional
corporate technology platforms and the Internet, is not lost on vendors.
Hewlett-Packard has said--and I agree--that within two years over 50
percent of a computer system's cost will be related to storage, well up
from the 25 percent to 30 percent today. EMC's dominance in the space
shouldn't be seriously challenged, in my opinion, but IBM is likely to
become even more
fierce a competitor.
Another new development in the market is the deployment of new storage
architectures, often from new vendors. Keep an eye on the emerging use of
network-attached storage (NAS), and storage area networks (SANs). Both of
these new technologies attempt to solve performance bottlenecks and
In a NAS environment, a storage system is attached directly to a network,
offering increased capacity to any server or client on the
Internet. High-performance and ease-of-use are two attributes most
seen with this architecture. Network Appliance was one of the pioneers in
this segment, and remains a leader in what is now over a $1 billion
Internet (or internal network) caching is a more recent application of
architecture that has tremendous growth potential. Caching, in short, is
storing copies of frequently used Web pages or data sets close to a user.
This method cuts access times while simultaneously reducing network
traffic. This potential multibillion-dollar market has attracted
significant attention--Network Appliance is also a key competitor here, as
are software vendors Inktomi and Novell, and network vendor Cisco--even
Intel is addressing this space with a low-end solution. I like Network
Appliance's position in this space--but the market is still wide open.
The final segment that deserves watching in the storage space is the SAN
segment. Based on a new, faster interconnect and protocol called FibreChannel, vendors are attempting to break up storage
into component parts (such as controller, software, and raw storage) and
create a network to attach them together. The advantages of this
architecture include more flexibility, lower cost, and easier scalability.
Already a number of companies that supply core networking technologies,
such as adapter vendors Emulex and Qlogic, switch vendor Brocade, and hub
vendor Gadzoox, are public companies, with many more vendors likely to
public offerings over the next year. Implementation of this solution
remains challenging, and many standards have yet to be set, but this area
will likely prove to be the most dynamic of all the storage segments.
Understanding this, EMC has also entered the SAN fray, with its own
solutions--focused more at the high end than competing solutions. Their
entry does, in my view, validate the long-term viability of this market.
From an investor perspective, this whole area is likely to become even
dynamic. Expect both increased competition and visibility as both new
entrants and existing vendors go after the market share leaders.
The preceding comments should not be considered a recommendation
concerning the purchase or sale of any securities mentioned herein.