Economy Catches Up With Data Storage Market

It took the failure of Lehman Brothers and AIG to do it, but the data storage market finally stopped growing in the fourth quarter.

IDC reported today that worldwide external disk storage systems factory revenues declined by a half percent in the fourth quarter, the first quarterly decline for data storage sales in more than five years.

EMC (NYSE: EMC), HP (NYSE: HPQ), Dell (NASDAQ: DELL) and Hitachi grew in the quarter, while IBM (NYSE: IBM), NetApp (NASDAQ: NTAP) and Sun Microsystems (NASDAQ: JAVA) posted year-over-year sales declines, according to IDC.

External system revenues in the quarter were off modestly to $5.3 billion, while the total disk storage systems market fell 5.9 percent to $7.3 billion because of weakness in server systems sales. Total disk storage systems capacity shipped reach 2,460 petabytes, growing only 27.3 percent year over year, about half the rate of the industry’s pace in recent years.

“Because of the global economic crisis, the last quarter of 2008 was tough for the disk storage systems market, resulting in a market decline from the same quarter last year,” Natalya Yezhkova, IDC research manager for storage systems, said in a statement.

Fibre Channel SAN sales were down 3.2 percent in the quarter as users turned to cheaper iSCSI and NAS solutions.

“iSCSI and NAS storage solution alternatives offer increased enterprise-level features at lower costs, and compel vendors to consider these technologies,” said IDC research analyst Liz Connor. “Continued end user education, growing confidence in IP-based storage, increasing product sophistication, as well as a typically lower price point, result in increased adoption of iSCSI and NAS by many budget-conscious end users.”

High-end storage sales were hurt by a freeze in end-user spending and longer purchasing cycles, but some low-end and midrange storage segments managed to grow, “as end users broadened their search for storage solutions in these lower-cost segments to satisfy their increasing storage needs while optimizing investments in storage infrastructure,” said Yezhkova.

EMC Still Tops

EMC maintained its external systems market share lead with 23.3 percent of revenue in the fourth quarter, followed by IBM and HP, with 15.7 percent and 13 percent, respectively. Dell ended the quarter in the fourth position with a 9.3 percent share. Hitachi and NetApp had 7.8 percent and 7 percent, respectively, and Sun 5.2 percent. Dell grew sales 10 percent in the quarter, HP 5.8 percent, Hitachi 3.5 percent and EMC 3.4 percent. Sun’s sales slid 10.1 percent, IBM’s 11.3 percent and NetApp 5.4 percent.

The total network disk storage market (NAS combined with Open SAN) grew 3.6 percent to $4.1 billion in revenues. EMC boasted a 28.6 percent revenue share, followed by IBM at 14.5 percent.

In the Open SAN market, which grew 2.2 percent, EMC led with 24.2 percent of the market, followed by IBM with 16.5 percent. The NAS market grew 8.6 percent, led by EMC with 43.8 percent, followed by NetApp at 24.1 percent.

The iSCSI SAN market continued to show impressive growth, up 61.6 percent. Dell, thanks to its acquisition of EqualLogic, led the market with a 35.3 percent revenue share, followed by EMC with 16.8 percent.

In the total worldwide disk storage systems market, which also includes server-based storage, HP led with 19.7 percent of the market, with IBM and EMC following with 18 percent and 17.1 percent, respectively.

So how will the storage market fare this year? Enterprise Strategy Group, for one, sees 3 percent spending growth for the data storage industry this year, a little better than IDC’s prediction of 2.6 percent growth for overall IT spending.

For an industry accustomed to years of double-digit sales growth, the adjustment could be a painful one.

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