I figured it was a challenge worth rising to in the knowledge that the storage market is comparatively buoyant. What I wasn’t prepared to discover was that storage vendors don’t appear to be immune from the malaise that’s afflicting other US high-technology stocks.
EMC, for example, which has about a quarter of the external disk system market, expanded its sales last year by more than 30% and this year expects business to grow by between a quarter and a third (to close to $US9 billion). Yet its stock value has gone from a high of more than $US100 a year ago to about $US30. How many ex-on-paper millionaires does that fall represent, I wonder?
The decline at up-and-comer Network Appliance has been even more dramatic. From a high of $US150 last October, its stock today hovers around the $US15 mark. It, too, is a company with excellent prospects: market researcher IDC says Network Appliance is on the brink of making it onto the list of the top 10 storage vendors; it’s appeared on various Fortune magazine lists of top performers; on Business Week’s list of 20 hot growth companies; and in the first nine months of this financial year, sales have more than doubled to $US780 million.
How unfair then, to be written off to such an extent by investors. Well, perhaps not. After all, storage vendors have willingly been whipping the market along. The remark from EMC boss Mike Ruettgers that “in the next two years more information will be created than in the last 40,000 years combined” is typical of the kind of hype that’s been surrounding the storage business in the past couple of years.
A report at the start of the year from investment banking firm Robertson Stephens, predicting data storage and security software sales would drop in the first half of the year, can probably take a good deal of the credit for puncturing the storage growth bubble. But it’s sure to be a self-healing hole. IDC, which takes a longer view, is predicting the software part of the market alone will more than double to $US10 billion by 2004.
This is the part of the market that Network Appliance is in. Boss Dan Warmenhoven, who was in New Zealand a fortnight ago to talk to customers, who include Air New Zealand and Clear, considers himself head of a data management company, rather than a storage company. Of course, he still gets excited at the storage hardware market’s growth potential. He expects storage to account for 75% of what’s spent on computers by 2003, compared to 25% on servers, the reverse of the spending ratio of five years ago.
Warmenhoven shrugs off the stock price crash, saying while it affects staff morale — since pay packages are typically sweetened with options to buy company shares, a suddenly much less enticing prospect — research and development doesn’t suffer, because it’s tied to revenue.
Evidence that the dip in investor confidence in storage companies is probably a blip comes from Microsoft. This month it has signed an agreement with WQuinn Associates to embed the company’s storage management software in Microsoft’s Server Appliance kits. This is big news for WQuinn, a $US10 million private Virginia-based company, represented in New Zealand by Soft Solutions. Its software is designed to expose inefficient use of storage systems, identifying duplicated and obsolete data.
Microsoft will be hoping the licensing agreement will persuade hardware partners like Compaq and Dell to make storage servers, which are necessary to turn Windows NT into a more complete platform for big customers.
According to WQuinn, the giant from Redmond wants to do that because the storage market is “a huge category which Microsoft hasn’t been getting any of”. History suggests that could be about to change.
You can wake up now.