With the economic recession in full swing, the crystal balls of analysts have grown somewhat foggy and most are finding that predicting the path of the current economic slump is next to impossible. Like most people, they only know enough to say that the outlook for the next year is not good.
The storage industry is by no means immune to the recession. Even storage heavyweight EMC posted a loss on its last financial results, its first ever. It's not all gloom and doom, however. For instance, early this year IDC predicted that the hard disk storage industry would continue to grow by double-digit figures. It projected that revenue would grow 12 per cent per year to reach $US53.5 billion by 2004. Those figures have been downgraded a little since September 11, but the analyst group remains buoyant about the long-term prospects for the industry.
According to IDC, the key drivers of that growth will be packaged storage solutions such as CRM, automation and data warehousing, combined with the growth of storage service providers (SSPs). In the home, storage sales will be driven by storage-intensive consumer applications (especially rich media such as downloadable movies) as well as broadband availability.
In a recent report, entitled Worldwide Hardware Systems Forecast Scenarios: Life After September 11, Gartner has offered sound advice to companies looking to weather the economic storm, which it expects to last until at least late next year. The report said that in an economic downturn consumers will focus on buying less-expensive items, like an Xbox or digital camera instead of a new PC. For PC vendors, this may be the time to be pushing upgrades rather than whole new systems, and hard disk and flash memory upgrades are near the top of the list.
The hard disk
It's almost self-evident that the increased uptake of broadband and rich media types will keep the demand for consumer hard disk space high.
The problem for the hard disk industry is cut-throat business models and sliver-thin margins, factors which have caused one manufacturer after another to divest themselves of the business. Quantum, for instance, sold its hard drive business to Maxtor in March this year, and Fujitsu recently announced that it is concentrating solely on notebook and enterprise hard drives.
Hard drive capacities have more than doubled year on year for the past five years. Technology announcements from Fujitsu and IBM have revealed that the companies have broken through some of the technological barriers and will be producing disks with densities greater than 100 gigabits per square inch, which was previously though to be the limit for hard drive technology. Current leading-edge hard drives have densities of about 40 gigabits per square inch.
Sales of flash memory products are a mixed bag. Logically, the increase in the number of consumer devices using flash memory should be driving a boom in the industry. Indeed, Cahners In-Stat has predicted strong revenue growth for the sector, claiming that worldwide sales will grow from last year's $US1.6 billion to $2.6 billion by 2005. This growth will be driven by sales of PDAs, digital cameras, mobile phones and portable MP3 players.
The bottom lines of flash memory manufacturers have not reflected this growth. A product shortage in 2000 turned into a glut of inventory in 2001, lowering prices dramatically. AMD, for instance, said flash memory revenue dropped 34 per cent in the last quarter, although it hopes that year-end consumer spending will revive the market. Whether it does or not, now seems to be a good time for consumers and resellers to pick up bargain flash cards for digital cameras and PDAs, with some 64MB CompactFlash cards selling for less than $100 at retail.
Sales of optical drives are expected to continue to grow, although IDC analysts feel the market is starting to show signs of saturation. Right now, read-only products still make up 72 per cent of optical media sales and 52 per cent of revenue, but IDC expects a sharp decline in the next five years. On the other hand, it expects recordable CD and DVD products to be "the leading growth technology between 2000 and 2005". If manufacturers can produce affordable DVD-recordable devices, the market could experience another boom like that generated by CD-R - but vendors have shown little sign thus far of putting these devices anywhere near the spending range of the consumer.
BUSINESS AS USUAL?
October was a dramatic month in the enterprise storage industry. The stock markets were truly shocked to hear that EMC's forecast revenue of $US12 billion in 2001 turned into forecast revenue of less than $7 billion. In the third quarter, EMC did the unthinkable: it posted a loss of nearly a billion dollars. And next year is expected to be worse for the company, with revenue sliding to just over $6 billion. A large part of that result came from the current state of the economy, but analysts are also saying that EMC failed to keep up with the market, missing the demand for smaller, cheaper machines to store corporate information.
Sales of storage products in the Asia-Pacific region are still moderately healthy, driven by strong demand for increased capacity even in the depressed market. Sales of disk storage systems in the region grew by 5 per cent in the first half of this year, although IDC predicts that rate will drop as the impact of the economic slowdown finally hits the region, and Asian markets, which generally lag behind the US market, start to tighten belts.
In spite of the gloom, the storage industry has almost a Net-boom startup mentality right now, with much of the innovation coming from new companies, which promptly get bought up by larger companies. There's a lot of faith in SANs (storage area networks), NAS (network-attached storage), new interfaces such as serial ATA, storage service providers and the potential of iSCSI and Internet-based SANs to drive the industry in the future.
The events of September 11, while hurting market confidence, may have also provided some additional opportunities for enterprise storage providers. In early October, investment bank Morgan Stanley polled 225 US companies to see if they had changed IT spending plans as a result of the terrorist attacks. About one in five said they had shifted focus to security and backup systems. As a result, analysts expect a boost in disaster recovery and backup system sales. Australia will be less likely to be affected by the shift in thinking, although some changes can be expected.
Traditional servers vs
It's no longer trendy, but server-attached storage is still the way that most organisations store data. It is pitted as a declining segment, however, with server storage expected to decline by 3 per cent or more over the next few years.
"Although disk storage systems internal to the server have experienced growth at a higher rate than the increase in the number of servers, it is the external disk storage systems that are experiencing the largest increase in demand," said IDC's Graham Penn in October.
New interfaces should help push the external devices. Fibre channel never really managed to take off (except in SANs), but vendors are hoping that a new standard that delivers storage information using IP delivery mechanisms will make the grade. iSCSI is the new poster child for storage networks, although it is too early to tell how successful the new standard will be. It uses SCSI commands over IP to deliver data. While this may increase network load, it may be easier to use iSCSI devices and increase network bandwidth than set up a SAN. iSCSI can also be used to develop cheaper, Ethernet-based SANs. Using IP, a company's existing IP management strategies (including quality of service) can be applied to the services.
NAS and SAN
Just about all the traditional hardware suppliers now have NAS products available. Even Iomega, which makes a habit of chasing growth markets, has entered the fray with NAS products.
The future for NAS looks bright. Many IS managers are finding the simplicity of NAS (just plug it into a network port and you instantly have an extra couple of hundred gigs at your disposal) as well as the low cost appealing. As a result, IDC has predicted considerable growth for the segment: it expects the market to have a compound annual growth rate of about 65 per cent until at least 2004.
SANs continue to have a lot of potential and little uptake. Most sales primarily occur in very large enterprises, while small business tends to rely more on traditional storage systems instead of storage switches and SANs, which require new methods of management and high degrees of planning. Then there's the cost of typical fibre-channel SANs, which tend to start at $100,000. Gigabit Ethernet-based SANs are becoming increasingly popular as a result.
SAN technology has also been plagued by interoperability issues, and buyers are well-advised to go with packaged systems. In the long term, storage systems will probably come to resemble PC and server parts, with a large range of swappable components that all interoperate seamlessly, but, for now at least, it's best to go with one vendor.
In spite of the availability of cheap network expansion, tape remains a dominant backup system, although NAS products are starting to rival it on a cost-per-megabyte basis.
Shipments of tape drives are expected to have a compound annual growth rate of about 10 per cent through to 2005, according to IDC projections. In 2001, just under 800,000 tape drive units shipped worldwide: in 2005 it will be just under 1.2 million.
The biggest tape currently available is the Quantum 110GB Super DLT, and 160GB tapes are expected soon. The company plans to deliver one terabyte tapes by 2006.
Quantum remains the strongest
player in the tape business with its DLT line of products, but stiff competition is expected from a new tape standard, LTO Ultrium, which is being backed by HP, Seagate, IBM and StorageTek.
Storage management software
There are big things on the horizon for storage software, according to IDC, which expects storage software to grow from $US5.47 billion in worldwide sales last year to $10.7 billion by 2005, a compound annual growth rate of 14.4 per cent. IDC did say, however, that moves to subscription models (SSPs) and a lack of IT staff trained in the area will have a short-term negative impact on the market.
Analysts said that backup and archive products are still in most demand, although they expect that the fastest growing products will relate to storage resource management. The latter will be a result of the growth in SANs and storage wide area networks (SWANs) using iSCSI and fibre channel.
The modular future
As we move toward more modular external storage systems, management and interoperability are going to be essential to the continued development of enterprise data stores, an area that remains positive despite the global economic meltdown.