The debt ceiling crisis and market uncertainty have impacted storage sales – particularly in the government and financial services markets – leaving storage executives wondering if the buying decline is temporary or will be long-lasting.
Two of the largest storage vendors — NetApp and Brocade — this week reported disappointing financial results for the quarter that ended July 29. Their executives used terms like “IT headwinds” and “macroeconomic factors” that suggest the problems were beyond their control and part of a larger financial picture.
NetApp’s revenue of $1.46 billion and forecast of $1.61 billion were both below analysts’ expectations, fueled by a recently optimistic analyst day held by the vendor. At least NetApp’s revenue grew year over year — Brocade reported storage switch sales fell six percent from last year.
Unlike most storage vendors, NetApp and Brocade’s quarter ended in July instead of June, so they got hit by the chaos around the debt ceiling debate in Congress that led to a roller-coaster stock market.
“Headwinds in the IT market, federal spending and the overall global economy made for a challenging quarter for the company,” Brocade CEO Mike Klayko said on his company’s earnings call. “The storage business is not immune to macro IT factors. Fluctuation in demand levels is normal and to be expected, particularly in this period of heightened economic uncertainty.”
NetApp said sales were strong last quarter until falling off a cliff in July. Executives blamed the debt ceiling crisis and “macroeconomic uncertainty,” saying federal government agencies and financial services were hit particularly hard.
NetApp CEO Tom Georgens said six of its 23 largest accounts are financial services companies, and all six had booking declines from the same quarter last year. He said that led him to believe NetApp’s sales decline was caused by overall economic factors rather than gains by competitors.
“We exploded out of April, we closed last quarter exceptionally strong,” Georgens said. “May was very strong, so there was no evidence that we had drained the swamp. And June was strong, so we were rolling. We were ahead of our forecast, and we felt really, really good about where we were. What we didn’t expect is the U.S. side of the house weakened as the quarter wore on. And financial services … the fact that all six of them in our major accounts program was down is an indicator that something’s going on there that I don’t think is specific to NetApp.”
Georgens said he doesn’t think the downturn will last as long as the one that began in late 2008, but he’s not sure of that.
“I don’t feel like we’re on the trajectory that we were in a couple years back,” he said. “I may feel that way 90 days from now, but it doesn’t yet feel that way today. This government thing — I don’t know how much the political overhang is a factor here, and we’ll just see what happens. But right now, we’re just going to assume that the current environment is going to stay roughly at this level going forward, and we’ll see where it goes from there.”
Brocade executives said they expect storage – particularly Fibre Channel SANs – to rebound because demand remains strong. Klayko said Brocade’s annual customer survey this year found that 80% of its storage customers said they expected to grow or maintain their FC switch spending over the next three years.
The vendor is starting to push its 16 Gbps technology, claiming there is demand for more bandwidth for applications such as virtual desktop infrastructure (VDI) and analytics. Klayko said Hewlett-Packard, IBM, EMC, Hitachi Data Systems and Fujitsu Technology Systems are already selling Brocade’s 16-gig switches.
“The buying dynamic continues to be very strong for Fibre Channel,” Brocade CTO Dave Stevens said. “It continues to be the dominant technology in the data center for pooled storage environments.”
Of course, demand doesn’t always turn into implementation – as NetApp and Brocade discovered last quarter.
Starting in late August, storage vendors will be making more product announcements than usual. These launches represent updates, next generations, or completely new products. Some announcements are coordinated with major industry events to give the vendors a venue to speak about and demonstrate the products. The early fall dates get the messages out at a time when IT professionals have returned from vacations (assuming they even find time to take vacation) and the purchasing/budget cycle for most companies is approaching year-end.
After the initial introduction of a product, its further development has a cadence built around development and test cycles to deliver new functions and provide updates or incorporations of fixes. This cadence is established around the cycles for test and release of new versions. The delivery cycle is generally six-months long for new functions or versions, with a quarterly minor update to include fixes for problems or issues discovered. Vendors need to take into account that an increase in frequency of releases increases the disruption for customers and internal support organizations.
There have been notable, misguided exceptions to this where hard lessons had to be learned by those who had not been through this before.
Major new product announcements start based on the product readiness (at least the hoped for readiness) for market. Even large mature companies sometimes blunder by announcing new products at times that guarantee to minimize the attention. One major product last year launched right before Thanksgiving.
Holidays are a bad time to get the attention of IT professionals. And the end of the year is the worst time to bring out a new product, whether it is sold directly or through the channel by Value Added Resellers (VARs). Sales people have quotas to make, and that is done with a product that has been introduced and promoted to customers. It is not done with a brand new product that must be explained and takes time for reference accounts to build.
The announcement season is upon us, and these announcements represent the planning, marketing, and engineering that went into a product. These are major undertakings by companies and the execution of the announcement including the timing, the venues, the supporting materials and the product delivery are critical for the success of companies. The announcement season isn’t just interesting — it’s important on a number of levels and impacts the success of a vendor and its individual products. Evaluating the products and how they are delivered could determine the continuation of a product line. That could affect a vendor’s reputation, and could even make-or-break smaller companies.
(Randy Kerns is Senior Strategist at Evaluator Group, an IT analyst firm).
Xiotech is changing its name to X-IO (pronounced X-I-O) as part of an overhaul that really started in 2008 when it launched its ISE architecture and accelerated with the appointment of Alan Atkinson as CEO in late 2009.
The name change becomes official next week, but Atkinson is briefing people in the industry about the move. With the new name, X-IO will sharpen its focus on solid state storage and gear up for a possible run at going public.
The vendor will continue to build on its ISE architecture, and is renaming its SSD-based ISE system Hyper ISE. The system first launched earlier this year as Hybrid ISE.
“XIO sounds like extreme IO, which is exactly where we want to be with our concentration on performance-driven storage,” Atkinson said.
Atkinson said Hyper ISE “is the same physical product” as Hybrid ISE, but its performance has been jacked up considerably due to improvements in the firmware and the algorithms used to tier data. XIO claims one Hyper ISE system can deliver 200,000 IOPS in a 14.4 TB, 3U box.
Hyper ISE uses multi-level cell (MLC) SSDs and 10,000 RPM SAS drives in one enclosure. Xio sees the system as a good fit for running databases, virtual servers and virtual desktop infrastructures (VDIs).
“We built Hyper ISE for performance-starved apps,” Atkinson said. “This is the next turn of the crank. We were talking about 60,000 IOPS before, but 200,000 IOPS is an awful lot better.”
Even with ISE as its centerpiece, X-IO is a different company than when Atkinson replaced Casey Powell as CEO. Senior management now includes industry veterans COO George Symons and chief strategy officer Jim McDonald. Like Atkinson, both have worked at EMC. The notable holdover is CTO Steve Sicola, who came to Xiotech when it acquired the Advanced Storage Architecture group from Seagate and turned its technology into the ISE platform.
The founders of Zerto are hoping to replicate the success they had with Kashya Networks, and they have $15 million in new funding to help fuel their plans.
Zerto was founded by the Kedem brothers, CEO Ziv and CTO Oded. They sold Kashya to EMC for $153 million in 2006. That turned into a good deal for EMC, which has had success with the RecoverPoint fabric-based replication product it got from Kashya. Zerto takes a different approach to replication. Instead of fabric or host-based replication for applications, Zerto Virtual Replication is a virtual appliance designed to work with VMware virtual machines.
On Monday, Zerto closed a B series funding round led by U.S. Venture Partners with earlier investors Battery Ventures and Greylock Partners participating. The round brings Zerto’s total funding to $21 million.
Ziv Kedem said the rise of server virtualization and the cloud have changed the face of replication for disaster recovery, prompting a shift in focus from physical devices to the hypervisor. Zerto positions Virtual Replication as a method of protection for VMs and applications for enterprise, or as the basis of DR as a service. It replicates specific VMs regardless of their LUNs, works with any storage array and features one-click recovery and WAN compression.
“The thing that’s changed from 2006 to today is the massive disruption of virtualization and the cloud,” Kedem said. “With a physical environment, storage was the center of the data center. Virtual machines have changed that and with the cloud, users just want to manage their applications. They don’t care where they are.”
Kedem said Zerto has about 20 customers in an extended beta program, including cloud providers offering DR as a service. The Virtual Replication product went GA this month. He said the startup will use the new funding to expand its sales and marketing. Kedem said he expects to grow the company from 30 employees today to about 50 by the end of the year.
InMage Systems has a new boss. He’s the same as its first boss.
InMage founder Kumar Malavalli moved back into the CEO role today, replacing John Ferraro at the helm of the disaster recovery software vendor. Malavalli, who also founded switch maker Brocade, served as InMage CEO from its start in 2002 to when Ferraro took over in 2006. As chairman during Ferraro’s term as CEO, Malavalli remained active in InMage’s setting business strategy along with fellow founder and current InMage CTO Rajeev Atluri.
“I’m excited to come back as CEO,” Malavalli said. “As chairman of the board and one of the chief investors, I have my own skin in the game.”
InMage’s products are Scout and vContinuum. Scout is a CDP-based backup and remote DR product and vContinuum provides backup and DR for VMware environments. InMage also packages its technology into a ScoutCloud platform for service providers to offer DR in the cloud.
Malavalli said the biggest change in InMage’s direction will be to seek more and deeper industry partnerships. Hitachi Data Systems sells InMage’s Scout product as HDS Dynamic Replicator, powered by InMage. But the model for InMage going forward is its relationship with SunGard. SunGard last month said it would embed InMage’s ScoutCloud platform in SunGard’s Server Replication services.
Malavalli said InMage will soon announce another partnership similar to the one with SunGard.
“We’re looking for OEMs but not your conventional OEM deal where they’re just reselling your product,” he said. “We want stronger partnerships, where they embed our products. The other partner we’re working with will also embed our technology.”
Malavalli said InMage’s customers today are mostly large enterprises with some growth in the midrange, and he is seeking to accelerate sales to cloud service providers offering recovery as a service.
The company last received funding in 2008, and Malavalli said InMage is close to profitability. He also expects to have two product upgrades by the end of the year.
Startup companies will often innovate and bring a unique product to market that can have high value for customers. The product may fit a specific need or solve a problem in a unique and economical manner.
These innovations are good for the overall industry and should be encouraged. A startup’s success is measured in products sales, although the goal of many startups is to see their products and technologies acquired by larger vendors. However, even a startup that gets acquired usually needs to have success during its critical initial go-to-market phase.
If you want to take advantage of the innovations by startups, there are a few things to consider. There is always a risk in buying from a startup, but the risk can be reduced by evaluating the company as well as the product.
These are key areas of the company you want to look at when evaluating a startup:
Management. First, look at the experience that the senior staff has. Have these executives brought a storage system to market before? Have they worked at that senior level previously? Has the leadership of the company done a startup before? There’s no substitute for experience, and in a startup there are things to be learned that cannot be learned within a large company. Bringing a storage product to market and putting the infrastructure in place for support are incredibly complex tasks. Only people who have done it before will understand the requirements.
Funding. Does the startup have the necessary funding? Many startups are funded by venture capital companies and receive only enough funding to reach the next milestone. Some of the VCs have a template of how they think a startup should progress. That template is based on the last successful startup that VC is familiar with. The VC will put a sequence in place to mirror the last startup, even if there is little or no relationship between the types of products involved. If the startup has a different development or delivery sequence than the template, VCs may withhold funds, change the management, or drop funding because they don’t believe they will get the expected payback. If the startup has enough funds to deliver the product and continue support, then that risk is alleviated.
Product support. Has the support structure been set up? Are the multiple levels of support available and is it staffed? What is the availability of on-site support and the coverage?
Board. Do their board members have a storage background? Storage has critical requirements and there is a cadence of how and when customers purchase storage. If the board that is assigned by VCs lacks a storage background, the startup can go in a wrong direction.
Spending habits. Does the company spend money wisely? Some startups have aggressive marketing leadership and spend some of the precious money needed to bring the product to market in questionable ways. Overdoing it on event sponsorships and engaging firms that publicize the company in marketing “reports” or positioning papers may be examples of money spent unwisely.
Stability. Has there been frequent executive turnover? Sometimes when the inevitable development delay comes or the startup does not match the VCs’ poorly conceived template, the VCs will find new executives they think can do the job. You should be concerned if this has happened more than once.
Partners. Who are the startup’s “friends”? The network of partners, ISVs, and other companies working with the startup is important. These relationships are indicators of an ecosystem of support.
More detailed evaluation guides are available at the Evaluator Group website.
(Randy Kerns is Senior Strategist at Evaluator Group, an IT analyst firm).
Brocade last Friday said its earnings last quarter fell short of its forecast, leading to questions about whether this is a sign of an overall slump in storage sales. Brocade is the market leader and one of two major vendors of Fibre Channel (FC) SAN switches (Cisco is the other FC switch vendor), and FC switches are a staple of SAN implementations.
Brocade’s preliminary results call for revenue of about $333 million to $336 million in storage gear revenue, which is a five percent to six percent year-over-year decline instead of the three percent to five percent increase the vendor originally projected. The new figures also represent a drop of 14 percent to 15 percent from the previous quarter. Brocade’s FC sales usually decline no more than two percent for the quarter ending in July. Brocade’s Ethernet sales also missed expectation although they will still be up at least 12% from last year.
It’s hard to say exactly why Brocade missed its sales goals, but there are three possibilities: FC SAN sales have dropped n recent months, Cisco has picked up market share, or Brocade has internal problems that caused it to miss its forecast.
Part of the problem is because Brocade sells its products through OEM deals with storage vendors, it has less clear expectations of coming sales than vendors who sell directly. That makes it tougher to accurately forecast its revenue. Still, Brocade said its sales last quarter were hurt by “weaker-than-expected storage end-user demand, which was down slightly from the previous quarter.” But Brocade’s biggest storage partner, EMC, beat its expectations last quarter and other storage vendors did about as well as expected.
Brocade’s quarter runs through July while most others end in June, so perhaps sales fell off during July. We’ll get a better idea of this when Cisco (Wednesday), NetApp (Aug. 17) and Brocade (Aug. 18) report their earnings in the coming weeks. Those earnings reports could also help clarify if Cisco picked up share in FC switching.
Wall Street analyst Kaushik Roy of Merriman Capital maintains that the FC storage market remains strong, and that iSCSI and Fibre Channel over Ethernet (FCoE) haven’t made much of a dent in SANs.
“Considering the healthy SAN sales from EMC, IBM, NetApp/Engenio, Hewlett-Packard/3PAR, Dot Hill and others, we do not believe that the end markets for Fibre Channel SANs are converting to iSCSI or FCoE faster than expected,” Roy wrote in a research note issued today.
In the statement released last Friday, Brocade CEO Mike Klayko said he would give details on plans to grow revenue and “manage expenses” during its earnings call. By manage expenses, does he mean Brocade will follow Cisco’s recent heavy layoffs?
Industry sources say Brocade has been for sale for several years, with Hewlett-Packard and Dell looking at it before deciding to buy Ethernet switch vendors – HP bought 3Com in 2009 and Dell recently said it would acquire Force 10. Brocade has also had a lot of management turnover since it acquired Ethernet vendor Foundry in 2009, most recently losing CFO Richard Deranleau in June.
“Management’s credibility has sunk to the bottom and some current (and past) investors are wondering why the board is not acting on it,” Roy said. However, he added, “Brocade is still an attractive acquisition target for companies who want to enter the datacenter market” and listed Oracle and private equity firms as candidates to acquire the switch vendor.
Fusion-io just completed it’s first quarter as a public company, and already its acting like a grown-up vendor. The PCI-based solid state storage vendor today acquired caching software startup IO Turbine for around $95 million.
The deal comes as competition heats up for Fusion-io from other flash vendors. STEC today brought out its first Kronos PCIe SSD card as well as its EnhanceIO SSD Cache Software. And OCZ Technology Group Wednesday upgraded its Z-Drive PCIe SSD card.
IO Turbine, which had $8 million in venture funding, came out of stealth in May with Accelio software designed to help mitigate IO performance latency problems in VMware environments by offloading IOPS from primary storage to flash. The software works with virtual machines that use locally attached solid-state storage or flash. Accelio installs on VMware servers, identifies the highest-priority data and offloads IOPS from primary storage to flash.
Accelio software is still in beta, but Fusion-io CEO David Flynn said his company tested the IO Turbine software with its own products at customer sites and was happy with the results. He said Fusion-io will integrate IO Turbine software with its ioMemory Virtual Storage Layer (VSL) software that virtualizes memory and storage. Fusion-io has a DirectCache software plug-in for ioMemory VSL but that does not focus on virtual machines.
Flynn said the ability to deal with VMs is crucial to his product line.
“We’re talking storage from the mainframe area of big proprietary centralized systems to the virtual era,” he said on a conference call to discuss the acquisition and Fusion-io’s earnings. “We do with data what VMware does with compute.”
There have already been three major acquisitions and mergers involving vendors that produce SSDs and hard drives since March. Western Digital said it will acquire hard drive and SSD vendor Hitachi Global Storage Technologies (HGST) for $4.3 billion, SanDisk acquired SSD vendor Pliant Technology for $327 million, and Seagate and Samsung formalized a strategic alliance involving Seagate’s NAND flash.
Storage Strategies Now analyst James Bagley said he expects to see more deals.
“This is further evidence that consolidation is coming,” SSN analyst Jim Bagley said. “All the SSD vendors out there won’t survive, but clearly the ones that have a good story are getting bought.”
Bagley said IO Turbine helps Fusion-io’s software story, but he said it doesn’t solve what he sees its biggest problem — increased competition from newer products such as those from Micron, Texas Memory Systems and STEC that offload the flash management from the CPU.
“Fusion-io’s hardware is getting long in the tooth,” Bagley said. “Having the server do all of the flash management is not a good idea.”
Flynn said he’s not concerned with the increasing competition or his company’s products. He claims Fusion-io’s biggest advantage is the reliability of its devices. He also said competitors focus on IOPS while Fusion-io concentrates on bandwidth and latency optimization.
“Nobody has really been able to compete with us on performance metrics that ultimately matter for accelerating applications,” he said. “It’s easy to make IOPS look good by putting eight SandForce controllers on a RAID controller and say, ‘Look at all the IOPS we have.’ But aggregation of SSDs on a card is problematic for reliability. What matters more is how the software is integrated with the operating system.”
Fusion-io’s first quarter as a public company was successful. The company raised $218.9 million in an IPO last June, and it said today that it slightly beat expectations with $71.7 million in revenue and $5.8 million of net income last quarter. That compares to $10.9 million revenue and a loss of $11.9 million a year ago. Its revenue in the previous quarter was $67.3 million.
Facebook and Apple remain Fusion-io’s largest customers. Flynn said they both accounted for more than 10% of the vendor’s revenue for the quarter, but he didn’t say exactly how much of Fusion-io’s products they bought.
As we see more companies begin Virtual Desktop Infrastructure (VDI) deployments, we spend more time explaining storage issues related both to server virtualization and VDI.
VDI deployments depend heavily on the intelligent usage of storage and on high-capability storage systems. The typical VDI project begins with a pilot program using existing physical servers and existing storage systems. The next phase usually involves scaling the VDI deployment to a threshold of close to 30% of the desktops. It is during this phase where the storage issues become apparent. The success of the VDI project will hinge on acquiring the right high-capability storage system – usually as an emergency purchase. The final phase is to scale to more virtualized desktops if the emergency found in the 30% phase can be dealt with satisfactorily.
The features most important with the high-capability storage systems include:
• Intelligent caching and data placement,
• Tiering of data – usually with solid state devices,
• Thin provisioning,
• Wide striping, and
• Cascadable read/write snapshots
Evaluator Group provides a document that discusses the needs for a storage system with VDI.
Our advice to IT includes a method for avoiding the emergency purchase by proactively understanding whether a storage system will meet requirements for a VDI project. The most effective way is to use a benchmark for VDI that focuses specifically on storage issues, and can show the right configuration to support the number of virtual desktops in use and the response time required.
The IT team needs to understand the type of workloads on virtual desktops required from specific users — such as a knowledge worker (using office tools), developer or financial analyst — and have the ability to dial in the right type of workload into the VDI benchmark. Acquiring a storage system with the correct amount of I/O streams requires a benchmark that will give IT enough information and confidence during the planning for a VDI project to make an informed selection.
Stay tuned for more information from Evaluator Group on storage benchmarks for VDI environments.
(Randy Kerns is Senior Strategist at Evaluator Group, an IT analyst firm).
Quantum has a lot riding on its new DXi Accent deduplication software and DXi6701 and 6702 backup appliances that launched Wednesday.
During the vendor’s earnings conference call Wednesday night, executives made it clear they are counting on the new midrange releases to revitalize its slumping disk backup business. Quantum’s disk and software revenues dropped last quarter, causing it to fall short of overall revenue forecasts.
Quantum added client-side dedupe with DXi Accent, and increased the scalability and connectivity options of its midrange appliances. Quantum CEO Jon Gacek said he is optimistic that these improvements will make the DXi platform more competitive with EMC’s Data Domain.
“With the changes we made, it’s a damn good product,” he said in an interview with Storage Soup. “If my sales team can’t sell this, I’ve got big problems.”
This isn’t the first time Quantum has revamped its disk backup products. Quantum refreshed its entire DXi hardware line following a rocky start that included an OEM deal with EMC that was terminated in 2009. It also rolled out DXi 2.0 software in March. But that didn’t do the trick.
Quantum’s total revenue last quarter was $153.5 million, below its $160 million forecast. Disk and software revenue – the DXi and StorNext platforms – came in at $27.6 million, down from $34.7 million the previous year. DXi revenue reached only 70% of the vendor’s internal plans, with the biggest shortfall on the DXi 6000 midrange platform.
Gacek said part of the sales slump came because Quantum rolled out DXi 2.0 software on the 6500 system but not on the 6700, causing confusion for his sales team and channel partners. Now Quantum is collapsing five 6500 and 6700 midrange configurations into two, and the 6701 can be upgraded in the field to the 6702. However, Quantum is bringing out its new DXi Accent software in phases – it is not expected to be available on the enterprise DXi8500 platform until late this year.
“I’d like to have it on 8500 as well, but we have to make some tradeoffs,” Gacek said.
Quantum is looking for the new releases to bring it into more deals with Data Domain. Gacek said when Quantum runs into Data Domain now, EMC will drop its price to win the deal.
“They dismiss our technology as being inadequate, yet they’re fighting so hard when we’re in deals with them,” he said. “I don’t think they price like that when we’re not in deals. We need to get in front of more customers.”
He said Quantum’s DXi win rate last quarter dropped to 45% from 55% the previous quarter.
Revenue from Quantum’s StorNext file archiving software also declined , taking a nine percent drop over last year. Quantum is counting on a recently signed reseller deal with NetApp and a new StorNext appliance for rich media customers to spark sales of that product.
Quantum’s tape automation business did grow eight percent over last year. “Tape is far from dead,” Gacek said on the earnings call.
Overall, Gacek said “We are not pleased with our revenue” in the first quarter of its fiscal year. “This start puts us a little behind for the year, but we plan to make it up.”