Storage Sales Remain Flat, But Prices Stabilize

Global sales of disk storage systems slipped slightly in the third quarter, research firm IDC said Friday, but the downturn in revenue is actually an improvement over past performance by storage vendors.

In its most recent quarterly report, IDC noted that worldwide disk storage system revenue totaled $4.8 billion in the July through September period, a 0.03% drop from 2002's third quarter. But compared with second-quarter numbers, the year-to-year decline was actually good news: In the second quarter of 2003, total sales were off 3.9% over the previous year, to $4.73 billion.

The figures indicate that the worst is over, said Charlotte Rancourt, IDC's director of disk storage systems research. "I think the market has finally bottomed out."

But even with the slightly improved news on revenue, demand for storage continues to remain soft. "Frankly, I don't expect it to return to the kind of system growth rates that we've seen historically," Rancourt said. "The market is changing. Instead of dollars flowing into storage hardware, they're going into software and into services to manage storage."

The total disk-storage system capacity shipped in the quarter, for instance, grew by what IDC characterized as a "modest" 36%, year over year, and accounted for 197 petabytes. In the second quarter, vendors shipped a total capacity of 181.6 petabytes. The rate of capacity growth has declined in each of the last four quarters over the previous year, according to IDC.

This fall-off in capacity sold doesn't mean that businesses are using less storage-- far from it, said Rancourt. Instead, it means they're using what they have more efficiently.

"With the advent of networked storage, a lot of capacity that had been sitting around unused in the enterprise has been consolidated," she said. "That's a permanent efficiency gain."

The brightest news in the quarter for storage makers, IDC analysts agreed, is on price. "Price declines have moderated and remained below 30% year-over-year for the last two quarters," added John McArthur, IDC's group VP of storage hardware research. Instead of waging price wars, vendors are stressing higher-value software, services, and application integration to gain a competitive advantage over rivals. "The price wars are over," Rancourt said.

In the overall disk-storage market, Hewlett-Packard continued to lead all other vendors with 26.4% of global revenue. IBM and EMC followed, with 21.1% and 12.9%, respectively. Dell, Hitachi, and Sun rounded out the top six storage system sellers. Dell and EMC posted the largest year-to-year gains during the third quarter, but those numbers are somewhat deceiving, according to IDC, which noted that EMC's sales in the same quarter last year were extremely weak as the company readied its newest line of Symmetrix systems, and that Dell's sales rely, at least in part, on EMC-branded hardware.

IDC also split out sales figures for the networked storage market, which takes into account network attached storage (NAS) devices as well as storage area networks (SANs).

Network Appliance and EMC were in a dead heat in the NAS arena, said IDC's numbers, with the former edging the latter in revenue by $6 million. However, EMC gained ground on its rival by accounting for 35.4% of the NAS market as Network Appliance slipped slightly to 37%.

HP continued to rule the SAN roost with 31.2% of the market, followed by EMC with 27%.

Sales of SANs were up significantly in the third quarter, according to IDC; the market grew 15.7% over the same quarter last year. All of the top three SAN vendors, HP, EMC, and IBM, gained market share.