Wall Street analysts expect storage companies to fare reasonably well in second-quarter earnings reports due out this month, and they expect an even stronger second half for the sector.
In a research note published last week, Merrill Lynch said it expects storage companies to meet analysts expectations for the second quarter, and to offer "healthy" outlooks for the third quarter.
EMC, which reports earnings July 21, has been able to avoid many short-term risks in the second quarter, Merrill analyst Shebly Seyrafi wrote. Channel checks suggest flat Symmetrix sales, likely due to customers waiting for a new Symmetrix release slated for late summer, but Clariion and VMware sales have been brisk. Improving enterprise drive supplies are also a positive, Seyrafi said.
But the Wall Street firm is negative on Network Appliance due to seasonal weakness and slower European sales. Seyrafi expects a strong second half from NetApp, however.
Seyrafi favors Emulex over QLogic, since "about a third of QLogic's revenue base is at risk over the next three years. As Fujitsu migrates its enterprise drive business to SAS (serial attached SCSI) from parallel SCSI, a large chunk of QLogic's HDC business (20%-25% of revenue) will disappear. Also, the company's management controller business (about 5% of revenue) will likely vanish in two to three years."
In the SAN switch space, Brocade and McData "remain unattractive, in our view, as Cisco continues to grow well," Seyrafi wrote.
Baird Sounds Upbeat Note
Baird analysts Daniel Renouard, Frank Timons and Joel Inman released their quarterly and full-year storage forecasts recently.
The firm's quarterly reseller survey suggests that second-quarter results will likely be most positive for EMC and NetApp, and "modestly negative" for HP, StorageTek and Sun, which recently announced plans to merge. The survey pointed to a strong second half for storage sales.
The Baird analysts also released the results of a survey of more than 80 enterprise end users that supported the reseller survey. The results were most positive for Dell, EMC and IBM, with HP and Sun improving over 2004.
The survey found that blades, server virtualization and low-cost disk are "coming on strong" — with low-cost SATA disk gaining at the expense of tape — while storage virtualization and iSCSI are growing more slowly.
Networked storage remains strong, with server attach rates to Fibre Channel SAN expected to grow from 29% to 46% over the next two years, driven by server virtualization and blade growth — which may also be holding back IP SAN adoption.
"We believe this bodes well for storage component vendors, including Emulex, QLogic, McData and Brocade," the Baird analysts wrote.