Storage vendors' earnings show array makers healthiest

(Opinion) -- More than 40 storage vendors have reported their quarterly results in the past month or so, and a picture is emerging of companies that are in Olympics-style shape at one end of the scale and intensive care ward occupants at the other. In between are the sick, walking wounded, strugglers as well as solid successes in the storage world.

Vendors report their revenues and net income/loss each quarter and their change since the same quarter a year ago.

There are three situations in which we get concerned about a storage vendor. The first of these is declining revenues. Giving us more reason to worry is declining revenue and falling net income. What sets the alarm bells ringing is an increased net loss coupled with slumping revenues. It means the storage vendor's business situation has become much worse during the course of the year.

Cisco showed a startling lapse in its high business standards by reporting a 14 percent drop in storage sales, which markedly contrasted with revenue rises in all other Cisco product sectors.
What we see are two solidly successful storage bellwethers, EMC and IBM, who have both reported both steadily rising revenues and net income. They are mature and exceedingly well-run companies.

CommVault, QLogic, CA, Symantec, PMC Sierra and Imation also all showed the same positive changes in revenue and net income.

There are two start-up stars in this category: 3PAR (enterprise storage arrays) and Data Domain (deduplicating storage arrays) with 3PAR reporting its very first profit.

Revenue risers with no net income change include STEC (SSD controllers), Hitachi GST (disk drives), and Western Digital (disk drives).

In the we're-a-little-worried section are Mellanox (InfiniBand), Double-Take (server replication), Iron Mountain (physical tape vaulting primarily), F5 (file virtualisation switches), FalconStor (data protection and deduplication software), and, surprisingly, Seagate. They all showed revenue increases and but made a smaller profit than a year ago.

Moribund Sun is in a section all to itself as both its revenue and net income fell slightly.

Cisco showed a startling lapse in its high business standards by reporting a 14 percent drop in storage sales, which markedly contrasted with revenue rises in all other Cisco product sectors. It didn't reveal its storage net income figure.

Amongst companies reporting net losses, there are two with profitability in sight through revenue increases and much-reduced net losses: SAN storage start-up Compellent and storage silicon-to-systems supplier LSI, now a rapidly recovering mature company with slightly improved revenues and much reduced losses. Compellent recorded a 70%-plus revenue rise as its customer count went past 1,000. Like 3PAR, this is a storage vendor that's in the vanguard of a fresh batch of SAN storage vendors behind the established storage array vendors.

Quantum is in a class of its own as its net loss improved but its revenues decreased. It pulled off the trick of getting more profit from less revenue. Tape-based revenues are falling faster than disk protection and deduplication revenues are rising. That should change quickly as other deduplication vendors, like ExaGrid and Data Domain, are reporting rocketing revenue increases. Quantum could well benefit from the same customer imperative to radically increase disk backup storage efficiency.

Sick companies are those showing revenue rises but worsening net losses or a year-on-year net income change to a net loss. In this area of the storage market we find Isilon, Dot Hill, SanDisk and Riverbed.

Knocking on the door of storage intensive care because of the severity of their worsening net losses, coupled with slightly lower revenues, are Emulex and Hifn (hardware compression). In the storage hospital's intensive care ward we find Plasmon, Qimonda and Overland Storage. Plasmon has re-ordered its marketing strategy around an archive virtualisation concept and now has to seek fresh financing to survive the next two quarters. It is on a tightrope.

Overland Storage is a (hopefully recovering) tape and disk data protection vendor which leapt in and opportunistically purchased the Snap Server NAS business from struggling server SAN interconnect vendor Adaptec. If Overland can return the Snap Server business to profit, then it could well have an accelerated recovery from the parlous condition it is in where, like Plasmon, it needs fresh financing to survive while its business is rebuilt.

Qimonda is a DRAM vendor hit by inefficient production processes and an over-supplied memory market with falling prices. It has to rapidly cut costs and is dancing a joint development tango with competitor Elpida Memory to save R&D costs.

The best-performing storage company of all? EMC. The worst-performing storage company? DRAM manufacturer Qimonda.

What investment morals can we draw from this tour around the storage market? Selling storage arrays is a good business to be in, with 3PAR, Compellent, EMC, and IBM all doing very well. Deduplicating arrays are proving very good news indeed for Data Domain and ExaGrid. Selling disk drives is good news for Hitachi GST, Seagate and Western Digital.

Selling server interconnect products is proving hard work for Emulex and Adaptec but QLogic is making a great fist of it with good all-round results.

DRAM and flash memory market conditions are hurting Qimonda (severely), Toshiba (less so) and SanDisk (much less so). Wide area data services has Riverbed's revenue rocketing up at 40 percent plus but its profit is turning to a net loss with alarming speed. That kind of accelerated change is not wanted at all.

The tape automation market is not a good place to be for either Quantum or Overland Storage. Both vendors are looking for disk data protection and deduplication to grow their revenues and get them out of the slough of tape despond. Quantum was hit with a failing format -- DLT -- whereas Overland was hit with a near-killer combination of misconceived strategy and business execution issues under a previous management.

Overall the storage industry is in good health. Out of 40 plus vendors reporting, only six are in or near the intensive care ward. Four others are showing signs of sickness and three have work to do: Quantum, Cisco and Sun. What does it all mean? Well, 27 companies (67.5 percent) are prospering. That's a healthy proportion.

About the author: Chris Mellor has been active in storage writing for many years, editing the UK's first print storage magazine, then its first dedicated online storage news channel, and is the founder of Blocks and Files.

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