Storage Market Remains Flat, Competition Fierce

The latest storage sector market-share numbers released by IDC reveal that the market remains weak and that competition among the major vendors continues to be fierce. IDC reported that overall factory revenues from disk storage systems worldwide hit $4.8 billion in third quarter 2003, down 0.3 percent compared with the same period in 2002.

The reasons for the weak performance are no secret. The growth in disk capacity continues to slow, and the per-megabyte price of storage continues to drop. In third quarter 2003, the total shipped storage capacity grew 36 percent over last year--about half the 76 percent compound annual growth rate that analysts such as McKinsey & Company estimated as recently as 2001. Although increases in disk capacity have been slower than anticipated, prices per megabyte shipped have dropped an average of 30 percent, a figure that has held steady for the past two quarters, according to IDC.

But although the overall picture remained glum, most major storage vendors have found a silver lining in their own niche. Network Appliance (NetApp) remained the worldwide leader in Network Attached Storage (NAS), with a 37 percent share measured by factory revenue and 42.8 percent of total terabytes shipped. NetApp also claimed the top spot for Internet SCSI (iSCSI) disk storage systems shipped--NetApp iSCSI drives accounted for 49.5 percent of the revenues and 63.6 percent of the terabytes shipped in that category.

For its part, EMC claimed that it had extended its lead over IBM and HP as the top provider of external RAID disk storage systems, accounting for 21.4 percent of total revenue compared with 18.8 percent of the total revenue generated in third quarter 2002. External RAID storage includes all controller-based disk storage systems not embedded in a server. EMC said its revenue from external RAID storage jumped 20.5 percent year over year, compared with overall storage market growth of only 5.8 percent. And although NetApp claimed the top spot for NAS, EMC noted that it's the leader in NAS and open Storage Area Networks (SANs) combined, generating 28.9 percent of the total revenue in those markets, compared with 27.8 percent last year.

IBM, which reorganized its storage operations over the past year in the wake of a blockbuster deal with Hitachi, noted that it had extended its lead over EMC in the overall disk storage market. IBM now accounts for 21.1 percent of total revenues in that market compared to EMC's 12.9 percent.

Finally, HP, which IDC reported was the overall market leader, weighed in with its own good news. The company trumpeted the fact that it had retained the number-one spot in the overall storage market (although its revenues had dropped 2.4 percent overall). HP also noted that it led in the open SANs sector, with a 31.2 percent share measured by revenue. Third quarter 2003 was the fifth consecutive quarter that HP led the rapidly growing open SANs market, shipping more SAN units that IBM and Dell combined. Moreover, HP noted, it was one of only two companies to gain share in the NAS market, with revenue growth climbing 28 percent year over year compared with a 22 percent jump in revenue in third quarter 2002.

All these claims and counterclaims underscore three fundamental trends in the disk storage marketplace. First, companies can no longer rest on their laurels in a specific market niche. The major companies compete with each other in every storage niche. For example, NetApp is riding into the SAN marketplace on the back of iSCSI, and EMC is reaching new markets through its relationship with Dell. In fact, Dell has climbed to the number-four spot overall, primarily through its role as an OEM for EMC. And all major vendors continue to broaden their product lines.

Second, server vendors continue to play a significant role in the market. The top four server vendors--Dell, HP, IBM, and Sun Microsystems--captured 48 percent of the total storage market, capitalizing on strong OEM relationships. At the same time, SANs and NAS are growing rapidly at the expense of Direct Attached Storage (DAS), which now accounts for only 41 percent of the total external-disk storage market, down from 46 percent in 2002. NAS currently has 54 percent of the market. The shift to network-based storage could change the dynamics of the entire marketplace in the years to come.

Finally, the major companies continue to dominate the most dynamic areas of the market. EMC, HP, and IBM increased their share of the overall network storage market. And NetApp and EMC continue to wage a fierce battle in the NAS arena.

With the economy picking up, the storage sector's long flat spell should be coming to an end. But the next wave of growth won't just be about adding capacity. Competition will also revolve around the efficient integration and management of storage networks.