Market of Midrange Storage Segment

Storage Battles: In the Middle is a recent complete report of 33 pages on the midrange storage market, written by RBC Capital Markets. Here is a summary of this excellent study.

The Year of the Midrange

With many of the large vendors recently refreshing, in the process of launching, and/or acquiring assets in the midrange storage market, we believe 2011 will shape up to be a period of increased competitive focus on the midrange, disk-based storage market.

We believe that further adoption of converged/unified storage and fabric technologies will lead to a blurring of SAN and NAS offerings for most application workloads.

Thus, in this report, we detail the midrange storage segment, with a focus on the overall unified midrange and not the midrange SAN compared to NAS dynamic. We continue to foresee sustained bifurcation in storage between pure play vendors (EMC and NetApp) versus larger system companies (IBM, HP, and Dell). We anticipate EMC and NetApp to realize outsized benefits relative to peers in the shift to unified midrange storage offerings.

Sizing the Opportunity: As a percentage of total disk-based storage revenue, midrange storage revenue ranged in the 2002-2010 time period of a low of 47% in 2003 to a high of 59% in 2010. After the company’s name on this page, we provide the respective 2010 revenue market share in the midrange storage market. As depicted by this data, the market remains highly fragmented, leading us to believe that further market consolidation through market share gains and acquisitions/divestitures is highly likely over the longer term.

                                     Historical external controller-based
                                      midrange disk storage revenue
                                             (in billions of dollars),
                                              annual growth rates


(Source Gartner: Market Share: External Controller-Based Disk Storage, Worldwide, 2007-2010; by Anthony Kros and Roger Cox; Published on April 26, 2011)

EMC (26%)
The leader in the midrange storage market (~22% of EMC’s consolidated results) helped its market positioning with the recent refresh of a unified storage platform (VNX), acquisition of Isilon Systems, and launch of the Atmos product line. Through the large direct sales force and recent refocus on the channel partner program, we believe EMC will aggressively position its VNX and Isilon offerings.

NetApp (15%)
In the era of unified midrange offerings, NetApp sits in an enviable spot with a robust product offering and strong channel relations. With the Engenio acquisition, NetApp added a $5 billion opportunity to address high-bandwidth workloads that are not serviceable with the ONTAP platform. We believe NetApp will try to convince Engenio’s customers to utilize its V-Series controllers, as an initial attempt to build NetApp brand recognition in a very large installed base. Then as users look to upgrade their storage hardware, we suspect NetApp will have an opportunity to allow customers to transition into its FAS offerings.

IBM (13%)
Due to higher-associated gross margins and a competitive attempt to retain its storage footprint (particularly at Engenio, which is now owned by NetApp), we believe IBM will seek to upgrade existing end users of its midrange Disk Storage (DS) product lines with newer offerings (XIV, Storwize V7000, and SONAS).

HP (10%)
As a result of recent storage-related acquisitions, we believe HP’s long-term storage strategy has and will further change significantly, which was materially needed due to its midrange revenue market share loss of 2,000 basis points from 2002 to 2010 to 10% share.

HDS (9%)
In regard to a unified midrange platform, HDS does not internally own the file-based technology portion; however, it has an ownership interest and OEM relationship with privately-held BlueArc, which offers scale-out NAS products for the midrange and high-end markets. We suspect that further adoption of unified storage functionality may lead this vendor to bring file-based storage access in-house.

Dell (4%)
The storage product portfolio remains in its infant stage, as Dell works to integrate the acquired technology (Exanet and Ocarina) with its midrange storage platforms (EqualLogic and Compellent). We expect Dell to incorporate these acquired technologies to offer an internally constructed, unified storage platform, with the company announcing in early June 2011 an integrated EqualLogic and Exanet platform (EqualLogic FS7500).

Oracle (3%)
Likely the biggest wild card in the space due to its uncertain product and go-to-market positioning, we believe Oracle could prove disruptive to the market due to the complete re-launch of its product line (Sun ZFS Storage Appliance), which contains most, if not all, of the necessary data management features to target mainstream enterprise users.