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Storage vendors haven’t been able to completely escape the perfect financial storm threatening the global economy, according to a pair of surveys by financial analysts.
Kaushik Roy of Pacific Growth Equities and Jayson Noland and Joel Inman of R.W. Baird have released their quarterly IT industry overviews, and both surveys found signs of slowing in the third quarter and considerable uncertainty heading into the fourth quarter.
“Management teams are struggling to figure out the impact of the sudden macro slowdown on their businesses,” Roy wrote in a third-quarter earnings preview released today. “Management teams are indicating to us that this is not a normal Q3/Q4 transition and thus they are having a very difficult time figuring out what guidance to provide for Q4. In our opinion it would be prudent for management teams to radically reduce forward guidance for Q4 and set a very conservative tone for 2009.”
“Our sense is that when the financial markets stabilize, investors are likely to be interested in stocks of the companies which have a strong competitive position and are executing well,” Roy concluded. He said EMC (NYSE: EMC), Brocade (NASDAQ: BRCD) and LSI (NYSE: LSI) “may have the most upside when the market recovers,” while NetApp (NASDAQ: NTAP) “may be the most at risk.”
One positive note is that Brocade was able to raise $1.1 billion in a tough credit market for its proposed acquisition of Foundry (NASDAQ: FDRY) — but that’s $400 million short of what the company needs. Still, Roy said he expects the deal to go through.
IT demand in Europe has held up pretty well so far, said Roy, “although we are not sure how much longer overall European IT spending can remain steady.” Demand in Asia remains healthy too, he said, with no slowdown evident in China despite concern that one would materialize after the Olympics and a general a slowdown in chip manufacturing in the region.
Roy said EMC’s quarter — to be reported on Oct. 22 — should be in line with reduced estimates, thanks to strong Clariion CX4 sales and shorter customer maintenance contracts that have helped the company win more deals.
HDS also appears solid even though it has greater high-end exposure, he said, and may soon introduce a new modular midrange array.
HP’s and LSI’s storage prospects also appear strong, he said, while Sun (NASDAQ: JAVA) has shown no signs of improvement and NetApp is struggling with competitive issues.
VARs See Weakness
Noland and Inman surveyed 56 enterprise resellers with total annual global sales of $9.3 billion and found that 41% of respondents were below plan in the third quarter, 41% were on plan, and 18% were above plan.
“VAR feedback for the quarter is about as negative as we have seen in years, with more resellers below plan than above plan for the quarter,” they wrote, adding that the fourth quarter is expected to be no better.
Still, storage remains the strongest area of IT spending, they said, while PCs and servers are expected to be weak. “Resellers describe storage as less discretionary, while delaying/cutting servers and PCs is relatively easy,” they wrote.
NetApp, VMware and Data Domain scored well in their survey, while Hitachi, Sun and IBM “were perceived as below plan.” IBM released preliminary quarterly results yesterday, with earnings above Wall Street estimates and sales below forecasts.
The Baird analysts found strong demand for de-duplicationand thin provisioning technologies. Fibre Channel sales were strongest, followed by NAS and iSCSI.
EMC was viewed as the leader in Fibre Channel, while NTAP and Dell’s (NASDAQ: DELL) EqualLogic unit were the top vendors in NAS and iSCSI, respectively.
