Financial forecast calls for gloom

Until now, the storage industry has held up well this year in the face of any economic slowdowns - even those affecting the financial services sector.

But with the economy’s problems taking center stage in the U.S. this week, financial analysts dusted off their crystal balls and saw a gloomy future for storage vendors.There were a slew of stock downgrades and even more earnings reduction forecasts for storage and the IT industry in general this week. And almost every one was attributed to the general economy rather than specific company problems. Whether Wall Street or Main Street gets the worst of the fallout, the consensus is less money will be left to spend on technology.

As RBC Capital Markets analyst Tom Curlin put it in a research note this week:

” … our deceleration stance with respect to U.S. IT spending is evolving to a contraction stance. The credit markets continue to tighten and the flow of credit to consumers and corporations is contracting. The metrics we track to ascertain consumer and corporate buying power are also contracting. In concert, degrading employment and capital spending metrics do not bode well for IT spending over the next 12 months.”

Curlin added his research shows “a neutral tone” regarding business this quarter, “but greater concern about the forward outlook. Naturally, this concern has risen after the collapse of Lehman and the various aftershocks in the financial system. Thus far, enterprise storage demand is steady, whereas we sense server demand has waned in recent weeks.”

Curlin downgraded the stock ratings of QLogic, Xyratex, Voltaire, and VMware, and slashed 2009 earnings estimates and price targets of EMC, Brocade, NetApp, Seagate, CommVault, 3PAR, and Compellent. In each case, he cited global IT spending slowdowns.

In a note to his clients this week, Aaron Rakers of Wachovia reported that around 18 percent to 20 percent of enterprise storage revenue comes from the financial services industry. He estimates systems vendors EMC and Hitachi Data Systems and switch vendor Brocade generate around 20 percent of their revenue from financial services, with HBA vendor Emulex likely higher.

So it follows that serious trouble in the financial services industry threatens a good chunk of storage sales.

Also this week:

• Pacific Crest’s Brent Bracelin cited a forecasted slowdown in data center-related spending while cutting stock ratings for Brocade, Double-Take, CommVault, and QLogic and cut price targets or estimates on EMC, NetApp, 3PAR, HP, Data Domain, Emulex, and Mellanox.
• Morgan Stanley lowered estimates on PC hardware stocks because of decreased global demand, and dropped stock price targets for EMC, IBM, Dell, Hewlett-Packard and Cisco among others.

Ok, it wasn’t all bad news. Caylon Securities upgraded data deduplication specialist Data Domain’s stock based on solid results this quarter. It figures the one storage technology that’s growing these days is one that’s responsible for bringing about reduction.