Merrill Lynchs 2005-2007 compound annual growth rate estimate of 11 percent for storage hardware easily surpasses the firms server and PC annual growth rate estimates of 2 percent and 6 percent, respectively.
The survey found that IT budgets are finding more room for storage-related purchases.
"We believe the storage industry has enough momentum to sustain a low-double-digit growth through 2007 and outpace the rest of the major IT hardware segments," wrote Research Analysts Richard Farmer and Neal Austria in the May 12 report from Merrill Lynch, based in New York.
Storage hardware is steadily increasing as a percentage of IT budgets, the report said. Results from the survey indicate a 2.4 percent increase in storage-related spending in 2006.
E-mail was the most cited driver of storage growth in 2005, and the CIOs surveyed in the report expect the same in 2006, Merrill Lynch said.
Backup and recovery was the second most important driver of spending in 2006—and is the No. 1 storage issue keeping CIOs awake at night. Other major drivers are database, new applications and simple business growth, Merrill Lynch said.
EMC was the most preferred vendor in the survey, holding a 25 percentage-point lead over its closest competitor, Hewlett-Packard. Network Appliance garnered a three-point share in vendor preference, but 7 percent of CIOs said they expect that company to take some market share in their organizations in 2006.
IBM also posted a four-point gain, which could indirectly benefit Network Appliance, because IBM is an OEM of its network-attached storage.
Merrill Lynch forecasts an external disk storage growth of 11.9 percent in 2006, remaining essentially flat from the 12.1 percent growth in 2005. For 2007, the firm predicted a slight deceleration to 10.5 percent—which is still strong relative to the 7.3 percent compound annual growth rate it predicted for 2002-2005.
The firm said it expects IT storage spending to continue to shift toward networked storage at the expense of direct-attached storage, resulting in networked storage growth of 18.6 percent in 2006 and 16.3 percent in 2007, compared to 20.4 percent in 2005.