Niche storage suppliers hold the line in recession

Comment Niche storage suppliers are going great guns in the recession while broad product line suppliers, like IBM and EMC, are suffering.

Looking inside IBM's overall good results, the recession-blighted fourth quarter of 2008 inflicted damage on its product revenues. Revenues from Systems and Technology, covering servers and storage, totaled $5.4bn for the quarter, down 20 per cent.

All hardware revenues, except those from System p server products, decreased with system storage dropping 20 per cent year-on-year. This is despite 2008 being a year in which IBM made significant storage acquisitions such as Diligent and XIV.

Full year 2008 revenues for Systems and Technology were $19.3bn, a decrease of ten per cent year-on-year, indicating that the bulk of the earnings decline took place in the fourth quarter.

EMC has aleady responded to the recession by announcing layoffs and spending cutbacks. Quantum, facing poor results from the last quarter of 2008, is closing down its direct sales team of about ten people in India and moving to an indirect sales model there. Its Indian R and D centre and customer support teams are unaffected.

Earlier, in November, Quantum announced it was reducing its workforce by approximately eight per cent (180 staff) and decreasing expenses, as a result of the unfolding global financial crisis. Overland Storage has announced another round of layoffs as well. Western Digital and Seagate have both launched headcount reduction programs.

In contrast to the damaged revenues inflicted on established storage vendors, niche vendor startups and others fresh out of a IPO have announced or indicated great results for the final 2008 quarter. Their newer and more focussed products delivered the goods for buyers even as the recession smote their competitors' revenues.

Compellent, the thin provisioning and tiered storage SAN vendor, has indicated no slowing of its growth. CEO and co-founder Phil Soran said at a Needham Growth Conference on January 6: "Frankly we're doing rather well despite the tough economic times."

He explained that Compellent sells to mid-sized enterprises and was getting pulled more and more into larger enterprises. There are no announced plans to cut spending or reduce staff numbers. There's a good chance when the Q4 2008 results are reported, expected in February, that we'll see a record quarter with double-digit growth in revenues.

ExaGrid, a privately-owned deduplicating drive array vendor, claimed record Q4 '08 sales with revenues up 120 per cent year-on-year and, amazingly, 23 per cent up from Q3 '08. As the recession deepened ExaGrid revenues increased. The company reckons it has the second largest de-dupe appliance installed base - over 1,200 systems - in small and medium enterprises after Data Domain.

CEO Bill Andrews trumpeted ExaGrid's success loud and clear. “Despite challenging macro-economic conditions, our worldwide sales to mid-market/small enterprise companies increased substantially in Q4 and throughout 2008.... We’re excited about 2009 and eager to leverage the strong business foundation we built in the prior year to continue our technology leadership and market share growth.”

If Exagrid is flying high then we might hope that de-duplication product market leader Data Domain will also announce fizzing results for the last 2008 quarter. It's due to report those results on January 29.

Fusion-io which supplies the flash memory-based solid state drive the ioDrive, with PCIe connectivity, reported a great Q4 08 as well. The privately-owned company added 151 new customers from the Fortune 1000, doubling its total customer number, and they gave it several million dollars of sales revenue. Looking ahead, CEO Don Basile said: "Our sales team has built an enormous pipeline of business going into the next quarter."

ProStor, the small removable disk drive vendor, appears to be doing very nicely indeed, having just notched up IBM as a reseller/OEM alongside Dell, HP and others. Expect sparkling results.

Riverbed, the wide area data services optimising company, issued outstanding preliminary Q4 08 results. It expects revenues of approximately $91m - $92m, a record, representing around 20 per cent year-on-year growth. This exceeds the guidance Riverbed provided on October 23, 2008, of $87m - $90m. Riverbed CEO Jerry Kennelly said: "We are pleased with our preliminary fourth quarter financial results.”

Riverbed is buying Mazu Networks to extend its suite of WAN optimisation products so as to include global application performance, reporting and analytics. The cost is $25m cash plus future payments of up to $22m depending upon future sales performance. There's confidence for you.

Texas Memory Systems, which supplies DRAM-based solid state drives, the RamSan products, also had record Q4 08 sales, with revenues growing 20 per cent for 2008 as a whole compared to 2007. Exec VP Woody Hutsell crowed: "We feared the global financial crisis and increasing competition would have a bigger impact on our 2008 results." The company is cautiously optimistic about 2009 with no hint of any doom and gloom.

The moral here is that high-end solid state storage, wide area data services and cost-effective disk storage products are still being sold into growth markets despite the overall storage and IT markets slowing down abruptly in the fourth 2008 quarter. These suppliers' narrow focus on growth markets is really paying off - for now.®