Bucking a Trend in IT Sales

As other segments suffer, storage looks strong.

In a high-tech world that has seen once-highflying dot-coms crash and burn, e-commerce stumble, and PC sales slow down, storage seems primed to continue its strong march this year.

Recent analysts reports indicate that storage sales will continue to rise despite a predicted overall slowdown in IT spending.

Last week, storage giant EMC Corp. announced strong quarterly earnings, a 49 percent increase in the fourth quarter of last year. EMC recently had its first customer to buy a petabyte of storage capacity.

IT managers are trying to balance the demand for more storage with a call to tighten budgets. Cutting back on data storage, they say, is akin to not taking out the trash—its going to keep piling up, whether you like it or not.

"The simple act of ordering groceries or sending out an e-mail creates more digital information every moment, every day," said Michael Ruettgers, chairman of the board for EMC, in Hopkinton, Mass. "If it is created digitally, then it has to be stored digitally."

Take Sprint Corp.s storage growth. Four years ago, the telecommunications company managed about 11 terabytes of distributed storage. This year, its IT managers will handle 80 terabytes. They had about 28 terabytes of mainframe storage in 1998, and that will increase to 50 terabytes by the end of this year.

Revenues from worldwide sales of external disk storage systems are expected to grow from $24.6 billion last year to $29.3 billion this year, and from 2002 to 2004, revenues are expected to rise from $33.8 billion to $45.2 billion, according to preliminary reports from International Data Corp., of Framingham, Mass.

And while a November report from Merrill Lynch & Co., in New York, predicts a slowdown in overall IT spending this year, it also says spending for direct-attached storage, storage area networks and network-attached storage will grow.

EMC, the top worldwide external disk storage supplier, built about 250 of its new IP47000 midrange storage devices and sold every one last month.

"They now have a huge backlog going into this year," said Carl Greiner, an analyst with Meta Group Inc., in Stamford, Conn.

But IT managers at such companies as Sprint and Rohm and Haas Co. say they are being asked to reduce their budgets, even as they continue to buy more storage capacity. Sprints answer is simple: consolidation.

"Overall, it appears that a lot of large companies are doing more of this," said Dan McCloud, senior manager of enterprise platform spending for Sprint, in Overland, Kan. "They are moving down that road ... to lower IT costs because they cant afford to just pay and pay. The idea is to use storage more efficiently."

Rohm and Haas has not yet finalized its overall IT budget for this year. The Philadelphia-based company made a multimillion-dollar purchase for hardware last year, so its spending this year will be reduced.

"We are cutting our budget pretty significantly," said Steve Davis, the companys manager of server infrastructure testing. "On the distributed [storage] side, we are treading carefully. Our spending in that area will not be significant. Generally, everything is under scrutiny. Like others, our company has been battling in the stock market."

But things are different for Hugh Hale, senior manager of IS at BlueCross BlueShield of Tennessee Inc. "We are planning to spend more than we did last year," Hale said. "If you take a look at our overall budget, it is growing quite considerably."

There are two reasons, Hale said. The company is upgrading its operating system from Windows NT to Windows 2000, and it is buying more disk space to meet the expanding volume of business. The company is expecting to grow 30 percent to 35 percent in its disk drive capacity this year.

"The old-line, brick-and-mortar companies, they will be spending. All of those companies will be growing," Hale said.

Vendors are expecting a good 2001. EMC and Compaq Computer Corp., of Houston, the top two storage vendors, are both sending positive vibes about revenue growth in storage—although for different reasons. Thus far, EMC executives continue to affirm it will be a $12 billion company this year.

Mark Lewis, vice president and general manager of Compaqs Storage Enterprise Group, acknowledges the overall anxiety regarding the economy has caused companies to re-evaluate their budgets.

Lewis said companies are focusing more on consolidation with an eye toward more savings, a plus for Compaqs lower-cost solutions.

"We see a big year for storage consolidation," said Lewis, in New Orleans. "But customers want more value. That will enter more into the equation. That bodes well for us. We dont see any indication we will have a hard time in storage."

Dell Computer Corp., of Round Rock, Texas, also is hoping to capitalize on possible belt-tightening.

Last week, Dell, which ranks sixth in revenues for worldwide disk storage systems, announced it will no longer resell EMCs Clariion midrange storage controller. Instead, it will sell its own new PowerVault 660F controller, which will be 30 percent to 40 percent less expensive than the Clariion product.

"Its hard for me to predict what the economy will do next year," said Bruce Kornfeld, Dells director of PowerVault storage marketing. "We have not noticed a slowdown. Our storage business has grown 70 percent, year over year, in the last two quarters."