Much of the tech sector has suffered this year from oversupply and weaker than expected demand, but storage value-added resellers (VARs) are upbeat on the prospects for a strong fourth quarter.
Wall Street research firm Robert W. Baird released its third-quarter VAR Survey this week, and the results suggest that the storage sector could end the year on a high note.
Baird surveyed 43 resellers in late September about third-quarter results, expectations for the fourth quarter, the impact of Sarbanes-Oxley, and their opinion of major storage vendors. The report was authored by analysts Daniel Renouard, Frank Timons and Joel Inman.
After dollar-weighting each VAR according to size, the Baird analysts concluded that third-quarter results just might turn out to be decent after all, despite the spate of negative pre-announcements in the tech sector in recent months. Baird found that 28% of respondents indicated that the third quarter was "better than expected," 57% replied that the quarter was "as expected," and only 15% said the quarter had been "worse than expected."
Their fourth-quarter outlook was even better. Asked about fourth-quarter expectations compared to normal seasonality, 63% of resellers were more positive, 37% were neutral, and none expected a weak fourth quarter.
Sarbanes-Oxley Helps Infrastructure Sales
The big surprise was that Sarbanes-Oxley (SOX) may actually be helping infrastructure sales, despite some reports of delayed implementations while companies prepare for the grueling requirements to test and assess compliance controls.
49% of the VARs thought that Sarbanes-Oxley actually helped third-quarter revenue, while 50% saw no impact. 60% think SOX will help fourth-quarter and 2005 sales, while only 1% expect SOX to hurt sales.
"We note that the resellers in our survey focus on enterprise infrastructure (servers/storage/infrastructure software) and do not speak to application software," the analysts noted.
EMC, IBM and NetApp on the Upswing
EMC, IBM and NetApp fared best in the survey, while HP and Veritas may still have some issues to work out.
38% of the VARs thought that EMC had the best quarter relative to expectations, while 31% selected IBM and 16% chose Network Appliance. 53% of the total sample thought that HP had the worst third-quarter performance relative to expectations, while 22% picked Veritas. 67% of HP resellers thought that HP had a weak quarter, "all of which is not that surprising, given they have not had meaningful initiatives in place long enough to impact the September quarter," the analysts wrote.
61% of respondents expect that the recently released TagmaStore product from Hitachi Data Systems will produce "moderate share gains" for HDS, while 39% thought the product would have no impact. No resellers thought the product would drive either significant share gain or loss.
100% of Hitachi resellers thought the product would drive "modest share gains," but 43% of non-HDS VARs also thought Hitachi was likely to see "modest share gains."
"We view these results about as expected," the analysts said. "Anecdotally, many VARs believe that vendor relationship is more important than product leapfrogs, which would benefit EMC."
Asked what the biggest issues with HP in the enterprise were, 62% thought sales and marketing was one of the biggest problem areas, 56% said product weakness and deficiency, 49% said channel policies, and 23% chose supply chain and execution.
"Although we note that 40% of HP resellers viewed this as a significant issue, non-HP resellers would probably have less visibility into this issue," the Baird analysts wrote.