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Any Future for Worldwide Storage Industry?

Not for big vendors

The worldwide storage industry market was growing since decades. But since several months we are alerted by global poor figures generating negative growth.

The two most prominent sectors are disk subsystems and hard disk drives, each of them representing more than $30 billion per year.

In its most recent Worldwide Disk Storage Systems Quarterly Tracker, IDC reports that disk storage systems factory revenue falls at rates not seen since 2009, -7% Y/Y to $5.6 billion in 1Q14, -17% from 4Q13.

The poor results of the first quarter were driven by several factors, the most important of which was a -25% decline in high-end storage spending,” said Eric Sheppard, research director, IDC storage. “Other important contributors to the market decline include the mainstream adoption of storage optimization technologies, a general trend towards keeping systems longer, economic uncertainty, and the ability of customers to address capacity needs on a micro and short-term basis through public cloud offerings.”

Worldwide Global Disk Storage Systems Revenue

Year Revenue* Y/Y growth
2002 19,651 NA
2003 20,219 2,9%
2004 20,862 3,2%
2005 23,059 10,5%
2006 24,443 6,0%
2007 26,335 7,7%
2008 27,565 4,7%
2009 24,465 -11,2%
2010 28,718 17,4%
2011 31,079 8,2%
2012 32,564 4.8%
2013 31,688 -2.7%

* in $ million
(Source: IDC)

The IDC analysts also report sluggish 1Q14 for EMEA external disk systems with revenue down 1.4% from 1Q13, and 13% from 4Q13.

The situation is less catastrophic for HDDs but it’s a declining market each year since 2011 after regular yearly growth in units shipped since 1976 – but in 2001 (-2%) for global economics reasons – until 2010.

HDD Units Shipped Worldwide

Year Units* Y/Y growth
2002 207,400 5,8%
2003 244,400 17,8%
2004 305,200 24,9%
2005 381,160 24,9%
2006 435,880 14,4%
2007 501,880 15,1%
2008 540,280  7,7%
2009 557,150 3,1%
2010 651,320 16,9%
2011 622,300 -4,5%
2012 578,470 -7,0%
2013 551,960 -4,6%

* in million
(Source: Trendfocus)

How to explain this recent profound decrease of the storage industry?

The worldwide economy is not in good shape, especially in some European countries, but, in the past, it was worst during some preceding years, so it’s not the main reason.

In our opinion, four factors are changing the game.

Firstly, lower sales of big proprietary monolithic storage infrastructure by big three EMC, IBM and HDS.

Secondly, storage giants drastically slow big acquisitions that was a factor of growth for them, and consequently for the industry. At half year, we counted only 24 M&As in storage, and small ones. The biggest one was Avago LSI flash business by Seagate for $450 million, then only two between $100 million and $200 million with the exception of the most recent SanDisk/Fusion-deal at $1.1 billion. We are far from the $ billion+ spent by the Dell (EqualLogic), EMC (Data Domain, Isilon), HP (3par), Sun (StorageTek, and then Sun by Oracle) WD (Hitachi GST) these past years.

There were 75 storage acquisitions in 2012 and 73 in 2013.

Best example here is EMC, historically the most voracious in the industry with 73 acquisitions since 1994, but much quieter these past years. It acquired 23 companies in 2007, just two in 2011, three in 2012 and in 2013, and just one (DSSD) this year.

The top storage firms prefer to be kind with their shareholders rather than investing on the long term.

Thirdly, smaller companies, not being acquired are very aggressive with excellent products.

Fourthly, there are few disruptive storage technologies these last years able to boom the industry, but four:
  • 1/ De-dupe and compression is a nice way for end users to spend less on storage capacity.
  • 2/ Big data analytics can help to sell storage but is not especially a storage technology
  • 3/ Software-defined storage augments software revenue but is supposed to avoid expansive systems by using more economical commodity products.
  • 4/ SSDs are several times more expansive than HDDs but their growing market is impacting magnetic rotational devices for low capacity and enterprise devices. They are used into subsystems mainly for mission-critical applications, not to replace currently all HDD arrays. In expansive all-flash arrays generating high revenue, the storage leaders encounter serious competitors including Pure Storage, Violin Memory or Nimbus Data.

Note also that companies like CommVault, Nakivo or Veeam have remarkable storage software to compete with big companies.

In its report on disk systems, IDC didn’t emphasize on a reason easy to observe looking at its figures: all top companies are declining but one category is growing: “Others“.

That’s our conclusion: future of storage is no more in the hands of huge but smaller companies.