Storage Array Software Add-Ons Lag Capacity Boom

January 10, 2011 Timothy Prickett Morgan

Disk array sales were up smartly in the third quarter of 2010, as The Four Hundred reported as last year came to a close, but storage software revenues grew more slowly than raw capacity, according to IDC.

The IT market researcher said that worldwide sales of storage arrays based on disks (either internal or external arrays) rose by 18.5 percent, to $6.97 billion, in the third quarter, with aggregate capacity sold rocketing up a stunning 65.2 percent, to 4,299 petabytes. This robust growth goes a long way toward pulling the disk array business out of the substantial hole that was dug underneath it during the Great Recession, which put a big damper on server, disk array, and systems software revenues from early 2008 through the end of 2009. While the market for add-on software used with servers and disk and tape arrays is considerably smaller–a little less than half of the disk array hardware sales–it is a very profitable business and one where array makers have a certain amount of customer lock in.

IDC reckons that on a global basis, companies consumed $3.14 billion in storage software in Q3 2010, an increase of 8.7 percent over sales in the year-ago quarter. (This is the last quarter for which data is available; the Q4 and full year figures are not expected out of IDC until March or so.) That was 6.3 percent sequential growth from Q2 2010, which is perhaps the more important indicator of the improving health of the storage software racket.

“The gains in the storage software market in the third quarter were largely the result of overall growth from some of the large suppliers,” explains Laura DuBois, program vice president of storage software at IDC, in a statement accompanying the figures. “From a segment perspective, the strongest growth is coming from double digit spending in three segments of storage software: data protection and recovery, up 10.7 percent year over year; archiving, up 12 percent; and storage infrastructure, up 37.3 percent.”

The leading vendor in the storage software business continues to be EMC, of course, and that company increased its share of the storage software pie in the third quarter, with revenues rising 13.9 percent, to $768 million. Symantec, mainly by virtue of its acquisition of file system maker Veritas a number of years ago, remains the number two player, with $518 million in sales, but with only 2.3 percent revenue growth in the third quarter, it is losing share. IBM, with only 6 percent growth in storage software sales in Q3 2010, hit $421 million but is also losing ground. Network storage pioneer NetApp continues to gain momentum, as is did during the economic downturn, with sales rising 19.8 percent, to $263 million.

You might be thinking that it is a wonder that Oracle hasn’t bought NetApp yet to scare the living daylights out of IBM, Hewlett-Packard, and EMC. But NetApp has a market capitalization of $19.8 billion as I write this, and with a reasonable premium, it might cost $25 billion. Then again, Oracle could merge with NetApp and not actually spend real money. For that matter, IBM, EMC, or HP could do the same.

Anyway, CA Technology, the most recent name for the former Computer Associates, sells a slew of storage-related software and came in as the number five vendor, with $104 million in revenues in Q3, up only 2 percent. HP has done a poor job turning its large disk array business into a storage software driver, and in the third quarter of last year the company actually saw sales slip in this area by 9.4 percent, to $99 million. Other vendors in this space, which include a wide variety of companies selling data protection and recovery, archiving, storage replication, storage management, storage device management, storage infrastructure, and file systems software, accounted for $969 million in sales, up 9.7 percent and beating the overall market by a little bit.