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Dell joins Compaq in mass storage premier league

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Storage Area Networking, Fibre Channel and RAID may be heartsink stories (as in most journalist hearts sink when they have to write about them), but they also increasingly look like licences to print money for the seven, mostly hardware giants that dominate the storage systems scene. These companies -- Compaq, IBM, EMC, Sun, HP, Hitachi and -- big surprise here -- Dell -- hoovered up more than two thirds of the $27.7 billion storage systems market in 1998. And they are set to gain even greater collective market share, according to IDC. "Shrinking server margins, EMC's success, and the realisation that the server companies had a captive distribution channel that was underutilized, led many to focus on storage and associated software and services," last year, the research firm says. This is not very difficult to work out for yourself , considering that storage can account for 75 per cent of cost of -- say - a $100,000 Windows NT server. Margins are higher in high-end storage than in servers because punters don't know the prices. In terms of product breadth there is effectively only a big five -- Compaq, IBM, EMC, Sun and Hitachi -- HP is effectively an OEM for EMC, while Dell is an OEM for the world. Leading the pack in 1998 was Compaq with 20 per cent share and $5.5 billion sales. The takeover of Digital enabled the company to leapfrog IBM, the traditional number one in this market. With 14.3 per cent share, IBM's worldwide sales nudged $4 billion in 1998. At number 3 with 11.5 per cent share, EMC is on the biggest growth curve, with 1998 revenues up more than 30 per cent to $3.2 billion. Sun is number 4 with $1.9 billion in sales and 7 per cent share, while HP takes fifth slot on 6.6 per cent share, representing $1.8 billion in worldwide revenues. Hitachi is the great underachiever in this sector -- great products, lousy market share -- at 5.1 per cent, and $1.4 billion in worldwide revenues. Unlike its rivals, Hitachi storage revenues for 1998 were flat, "owing to heavy discounting and the decline in the Japanese economy," according to IDC. It also notes "challenges in developing a distribution strategy outside of the current direct sales force". But to us that looks like placing too much emphasis on the power of the channel. Hitachi is struggling to keep up with the market leaders because it has a puny captive base outside Japan -- and its off-base brand awareness is poor. So resellers and disties can afford to ignore the company. Maybe Hitachi needs a new storage sales director -- selling direct (and direct only) has done EMC no harm. Nor Dell come to that matter. Dell took 3.4 per cent ($934 million) in 1998, enough to get it into the premier league for the first time.It is a bit of a bottom feeder --shipments consist "almost entirely of Windows NT (2000) and NOS, the two operating environments for which IDC expects the highest growth rate in disk storage systems from 1998-2002". Dell's rise shows how useful an captive server is in building a successful storage systems business. ®

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