The Four Hundred--Disk Array Sales Firming Up, Says IDC

On configured midrange and enterprise servers today, main memory and disk storage can account for anywhere from 50 to 70 percent of the total cost of acquiring that system. So you would think that it would be relatively easier to make money selling disk arrays, right? Wrong. The disk market has been cut-throat for years, and it shows no sign of abating any time soon. But with business perking up a bit, makers of disk arrays are saw their top lines stabilize in the third quarter, according to an analysis of the market released by IDC late last week.

IDC says that the worldwide sales of disk arrays--by which means the company means disks, controllers, and based software but not connectivity switches that are sold either as a standalone unit or under the skins of the server (as is the case in the iSeries)--was down 0.3 percent to just under $4.8 billion in the third quarter, despite aggressive price cuts by vendors to remain competitive with each other. While a revenue increase would have surely been welcomed by all of the major and minor players in the storage arena--there are still dozens of minor players, just like in the server market--the fact that revenues have stabilized more or less means that companies are buying new capacity. IDC reckons that a total of 197 petabytes (that's 197,000 terabytes) of storage arrays were sold in the quarter, up 36 percent compared to Q3 2002. The cost per capacity, on average across all vendors and architectures, for all storage arrays is about $24 per gigabyte. A decade ago, a RAID array was an exotic thing that sold for $10 per megabyte.

Disk arrays are in a sense just specialized servers for storing data and feeding them to servers, and they share many of the same components as servers. While hardware distinctions are important in the disk array market, other factors are increasingly being used as differentiators. These factors are not showing up in the IDC numbers, since snapshotting and remote copy software functions, just to name two, are not counted in the numbers it provides. "While the rate of capacity growth has declined in each of the last four quarters, price declines have also moderated and remained below 30 percent year-over-year for the last two quarters," says John McArthur, group vice president of storage hardware research at IDC. "Rather than waging price wars, suppliers are increasingly turning to higher-value software, services, and application integration to gain competitive advantage." What this means to you is that you can forget aggressive pricing on storage hardware unless you buy in to the software stacks storage makers are peddling.

Here's how each of the major vendors did in the third quarter of 2003 compared to the same quarter in 2002:

The breakout by vendor is based on whole actually sold a branded array, not on who made a particular array. Many of the vendors shown above have OEM agreements with other vendors. For instance, EMC resells low-end arrays that it co-designed with Dell and are now manufactured by Dell; Dell also sells higher-end arrays made by EMC under its PowerVault brand name. Hitachi sells its high-end arrays to Sun Microsystems and Hewlett-Packard. IBM resells midrange arrays made by LSI Logic and Sun resells midrange arrays made by Dot Hill A table showing who actually made the arrays and who actually kept the money in the storage business when it stopped being passed around would look very different from the one shown above. But this table shows who closed the sales deals, and that is what matters in the quarterly financial results and annual reports, I suppose.

The table above shows sales of internal and external systems together, and includes direct-attached storage (DAS), network-attached storage (NAS), and storage area network (SAN) variants.

Externally attached storage accounted for $3.2 billion in sales worldwide, or about 67 percent of total storage array sales. Sales in this area were up 1.5 percent, which implies that prices on internal arrays are actually falling. In this externally attached storage array market, HP has 21.8 percent share and the top position. EMC is in the number two position with 19.2 percent share. (IBM has a large internal array storage business on the iSeries, which is why it is not in the number two slot when it comes to external arrays.) The top four server makers (IBM, HP, Sun, and Dell) captured 48 percent of the sales of storage arrays to end users in the quarter, up a bit from this time last year.

In the network storage market (which IDC defines as NAS plus SAN), EMC has a 28.9 percent share, followed by HP with 25.6 percent of the market and IBM with 11.5 percent. All three of these vendors increased their market share of the network storage portion of the storage array market in the third quarter, according to IDC. Sales of SAN arrays were up 15.7 percent in the quarter to $1.37 billion, says IDC. HP and EMC are the big players here, with HP getting a 31.2 percent share of the market compared to EMC's 27 percent share. While NAS gets a lot of airplay, there is not a lot of money in it--at least not yet. Network Appliance and EMC brought in only $136 million and $130 million in NAS sales in the third quarter, respectively. Total NAS sales were about $368 million in the quarter, so these two companies have a pretty strong lock on this part of the market.