It used to be so simple: EMC, NetApp, Hitachi and the captive storage businesses of systems companies. Add in some fast running startups, such as today’s Nimble, Nutanix and Avere, to keep things interesting.
But no more. While the startups will require several more years before they make a dent in the big boy’s businesses, the cloud storage vendors are taking the joy out of high-end storage.
But wait, there’s more!
A group of new entrants are moving into the enterprise storage business and they promise to be even more exciting. Why? Because they are already large businesses with other revenue streams that can support an attack on entrenched competitors.
It’s called competition, grasshopper.
SanDisk, Western Digital and Seagate are all moving into the enterprise storage business. Then of course, there is the dark horse: Cisco.
To get a sense of the scale of the struggle it’s useful to compare EMC and NetApp to the newcomers.
EMC and their federated stovepipes have a combined market capitalization of $55 billion. And annual revenue of $23 billion.
NetApp has a current market cap of almost $12 billion based on revenue a little over $6 billion.
EMC’s growth has flatlined lately while NetApp is shrinking – and flailing.
Handicapping the race.
Western Digital and Seagate. Both have discovered the joys of high-margin storage systems. Neither is a marketing company but they do have strong brands.
10 years ago it would’ve been heresy for either company to compete with its major customers. But since its major customers are abandoning hard drives for SSDs and have no one else to buy disks from, Seagate and WD rightly figure they have nothing to lose. And they know how to play the commodity game much better than EMC.
Seagate has a $19 billion market cap on revenue of almost $14 billion. Western Digital has a market cap of $23 billion on revenue of $15 billion.
Due to the falloff in disk drive sales both companies are looking for new revenue sources and have already found success in low-end storage systems. It won’t take them long to realize they can do even better if they move up the food chain. But what to buy, since they aren’t going to build. Exablox? Panasas? Promise?
SanDisk’s market cap is $24 billion on revenue of $6.3 billion. Clearly, investors expect great things from SanDisk and their latest quarterly year-over-year revenue growth of almost 13% is part of the reason.
With their joint venture with Toshiba and their acquisition of Fusion-I/O they are well-positioned to continue to ride a market they helped invent: flash storage. Expect them to purchase an all-flash array company soon.
The Dark Horse rises
It seems inevitable that Cisco (market cap $133B; revenues $47B) will make a major move into storage: they already have servers; storage margins are excellent; and their revenue growth is slowing. They need to do something.
But what? Whiptail is a feature and not a game changer. NetApp is getting cheaper by the day, but retooling their failing product strategy would take years.
Besides, EMC has signaled, through the DSSD/Bechtolscheim acquisition, that they will take the fight to Cisco’s networking business if need be. Yet EMC holds the weaker hand: storage turmoil is greater than the network space; EMC is the smaller company; and Cisco’s market penetration is higher.
Cisco can also choose the time and place to start the fight. EMC has bigger issues.
The StorageMojo take
The fundamental dynamic is simple: the advent of commodity-based scale-out storage is killing the current high-gross margin storage business. Think the server business from 1985 to 1995.
Squeeze the gross margin dollars from 60% to 35% and something large has to give. In the mini-computer space it was Data General, Wang, Prime and DEC.
Courteous comments welcome, of course.