Strategic storage vendors

STEC overstock raises red flag about SSD adoption

 SSD supplier STEC’s stock price has taken a dive since the vendor reported last Tuesday that EMC will carry over its 2009 inventory of Flash drives into 2010. Shares have fallen almost $9.00 to $13.18 at today’s close. According to a report from MarketWatch:

Much of the carryover involves STEC’s Zeus IOPS SSD products. EMC makes up about 90% of STEC’s business for the Zeus IOPS drives, and had placed an order for $120 million of the drives for the second half of this year.

STEC officials said that about $55 million of that order has been delivered, and the rest would be shipped before the end of year.

A flurry of class action lawsuits have been filed accusing STEC executives of misleading investors before making their revelation last Tuesday. This all leads me to wonder if the industry has been wrong about SSD adoption overall.

All EMC would say in a statement released through a spokesperson was “EMC is pleased with its SSD demand and growth. In Q4, EMC will introduce unique FAST (fully automated storage tiering) capabilities, which are expected to increase SSD growth and demand even further.”

Does this inventory carryover send a signal about wider SSD adoption in the market, given how dominant STEC’s share is (and EMC dominates its business)? I asked a couple of analysts for their opinions.

“Well, what I have been hearing is that EMC is giving SSD away for free to try to spur adoption, but so far it doesn’t seem to be working — it’s too costly, and too wasteful without some type of FAST capability,”  Forrester Research analyst Andrew Reichman responded in an email. “SSD as a performance add-on is not popular in this economy… It’s interesting to see that STEC can’t make a go of this business even though they have a number of the major storage vendors signed up as partners. That says to me that it’s not competition, but the whole category being slow so far.”

Added Taneja Group analyst Jeff Boles, in another email, “while we’re in the midst of an unusual market that likely over-penalizes STEC for perceived risk, while over-endorsing other companies for perceived value, I remain cautious about the speed of SSD adoption.”

But, he added, the newness of SSD could be creating a vicious cycle of perceived risk.

“What the market needs is a good round of commoditization, brought on by integration of some of this intelligence into the storage system itself,” Boles wrote. “At that point, obsolescence will start to look a bit more unusual, and the roadmap for future devices a little more predictable. After all, if your XYZ array had solid state intelligence in it, and you were buying highly commoditized drives that only changed with the density and performance of the flash memory itself, then there seems to be less risk that your flash investment could be rapidly outdated by the next rev of a drive controller.”

As always, the peanut gallery is invited to weigh in.

Dell and EMC: OEM vs. reseller

There’s been some head-scratching around the storage industry after EMC CEO Joe Tucci and CFO David Goulden said on EMC’s earnings call last week that EMC would discontinue its reseller relationship with Dell. The execs said Dell and EMC would continue to focus on their OEM relationship, but didn’t go into detail about what it all really means.

The subject came up again today at the 451 Client Conference in Boston, where an EMC employee who requested anonymity clarified: OEM means anything Dell sells under the Dell brand. That means Clariion and some Celerra, for which Dell handles some of the manufacturing. The reseller relationship was based on opportunities turned up by Dell that were referred to EMC — this involves Clariion and Celerra, but also Symmetrix in some cases.

On the earnings call, Goulden said Dell Clariion revenues decreased 15% sequentially, though overall Clariion revenues were up 1%. Dell still accounted for 25% of overall Clariion revenues, and within that, 15% was attributable to the OEM business.

So, the first thing this change in relationship means is the potential loss of about 10% of EMC’s Clariion revenues, although those customers may still buy Clariions through EMC or its other channel partners. Tucci said EMC and Dell would try to “pick up the slack” with OEM sales as the reseller relationship is de-emphasized.

It also means, ostensibly, that Dell will no longer be referring Symmetrix sales when suitable opportunities arise.

Dell’s margins are higher and it makes more money from the OEM deals — where it also handles support -– than from the reseller deals. But by giving up Symmetrix reseller deals, will Dell leave an open door for its customers to go to Hewlett-Packard or IBM? Or will Dell find another partner? If so, who? And just how close would that partnership be?

Dell’s acquisition of iSCSI vendor EqualLogic – which makes systems that sometimes compete with Clariion – worked out well, and Michael Dell said in June he was looking to acquire companies. 3PAR, which makes disk arrays that compete with Symmetrix, was mentioned by storage industry watchers as a potential acquisition target for Dell, although the $3.9 billion buy of Perot Systems in September put the kibosh on most of that speculation. 3PAR’s market cap is currently at a little over half a billion, so it wouldn’t be quite as much to swallow as Perot.

In light of all this, what should we make of Dell’s surprisingly aggressive response to EMC’s announcement of a new joint venture with Cisco and VMware this week? What about the fact that Dell’s Clariion sales declined though EMC’s grew? Is the on-again/off-again Dell/EMC coziness back off again?

Reports resurface of EMC/Cisco joint venture

Rumors began swirling around the time of VMWorld in September that EMC and Cisco would be creating a joint venture to sell infrastructure to support VMware. Last week, two stories appeared on the news wires indicating an announcement may be imminent.

A story from the Dow Jones Newswire that appeared on the Wall Street Journal’s website said the partners are set to launch the venture this week with a product dubbed V-Block. According to this report, the new joint venture will have its own CEO.

Meanwhile, according to a Reuters report that also appeared Friday,

One part of the partnership calls for the two companies to form a joint venture that will sell vBlock as a hosted service. Customers can pay for that service based on the amount of computing power and storage that they need, accessing it via the Internet.

That joint venture will assemble computer systems for customers, integrating all necessary hardware and software to make the systems work.

According to reports and previous rumors, the joint venture would involve Cisco’s Unified Computing System and EMC storage. VMware, Cisco and EMC have had a longstanding alliance, dubbed VCE. What would make this different is that it would be a separate company with its own sales force, meaning the companies wouldn’t have to pay multiple commissions to multiple sales people for the same sale. It’s unclear what this joint venture would mean for customers that the existing partnership doesn’t offer today outside of one throat to choke for support.

Oracle OpenWorld keynotes emphasize hardware

Oracle OpenWorld kicked off yesterday in San Francisco (at the Moscone Center, same place VMWorld was held). Sun Microsystems Chairman and co-founder Scott McNealy and Oracle founder and CEO Larry Ellison took the stage for keynotes Sunday night, highlights of which were available on Oracle’s website this morning.

For perhaps the first time at an official public event, the word “storage” was uttered by an exec from the merging companies, who have already assured the world that server hardware development will continue.

According to McNealy,

If you think about the Sun technology that we’re bringing to the party, here, it’s the data center. It’s the servers, the storage, the networking, the infrastructure software, all the pieces, all of the executable environment within the cloud, the data center, the distributed computing environment, whatever else you want to say, and then you bring in the database, and the applications and ERP and middleware capabilities and developer tool capabilities of Oracle, and you have a very nice data center. A very robust, very scalable…enterprise data center.

This end to end “stack” vision would be in keeping with the other big players in the market, which are beginning to offer prepackaged product bundles and looking to be soup-to-nuts suppliers to the enterprise data center. Oracle’s competitive landscape for end-to-end stacks includes Cisco Systems Inc., IBM Corp., Hewlett-Packard Co. (HP) and Dell Inc.

There are advantages, Ellison said, in a company being able to control the engineering of both hardware and software. “We are not selling the hardware business-no part of the hardware business are we selling,” Ellison said in his keynote, though he went on to specifically discuss mostly server technologies like Sun’s SPARC chips. (Here’s where Sun might point out that it recently merged servers and storage together in terms of its engineering departments and in terms of its strategic thinking with Amber Road…)

So the biggest question for the storage hardware market with this merger still comes down to tape. Some of the competitive ”stack” offerings like those from IBM include tape — in fact, with its latest Information Archive appliance, IBM is offering tape as an option managed by the GPFS global namespace, a setup highly remeniscent of the way Sun’s SAM-FS can manage data in disk repositories as well as StorageTek tape libraries.

Judging by the speeches from McNealy and Ellison, it seems no hardware product is being taken completely off the table yet, but what the newly merged entity will do with tape storage hardware specifically remains uncertain at this point.

Industry watchers place bets on EMC-NetApp-Data Domain love triangle

Other than the extension of EMC’s bid for Data Domain last Friday, the NetApp / Data Domain / EMC drama has begun to simmer along at a more muted pitch than we saw during the initial bid and counter-bid process. For now, the storage industry is in a holding pattern, waiting to see who wins - and looking to place bets.

The prevailing wisdom so far is that, for all the seeming enmity between Data Domain’s management and EMC Corp., the ultimate decision lies with the shareholders, and it’s unlikely shareholders will choose NetApp mixed stock / cash deal over EMC’s all-cash bid. Some shareholders have already filed suit against the Data Domain board, saying the board failed in its responsibility to shareholders by agreeing to be acquired by NetApp.

Talk has also turned to anti-trust due diligence currently being carried out on the proposed deal by government regulators including the FTC.  According to a Reuters report last week,

The U.S. government could hinder EMC Corp’s (EMC.N) $1.8 billion bid for Data Domain Inc
(DDUP.O) as antitrust regulators are expected to scrutinize it more closely than a competing offer by NetApp Inc (NTAP.O).

While by far the bigger company, EMC is in a more precarious antitrust position than its smaller rival because EMC is the largest player in the market for so-called data reduction technology in which Data Domain specializes.

Both bids are being reviewed by the U.S. Federal Trade Commission, but antitrust experts and industry analysts say EMC’s offer could get delayed for weeks or months, while they expect NetApp’s to win quick approval.

However, storage industry analysts say it would be a stretch for antitrust laws to block an EMC acquisition. “It’s tough to unravel,” said Forrester Research analyst Stephanie Balaouras. ”Given [that] dedupe will exist everywhere,  [in both] hardware and software, I think there are plenty of options.”

In the meantime, the Motley Fool published an interesting post yesterday entitled “EMC’s Just Not That Into Data Domain Anymore“:

EMC’s (NYSE: EMC) tender offer for storage efficiency expert Data Domain (Nasdaq: DDUP) was set to expire today, so the company filed an extension until July 10. Data Domain will hold its annual shareholders’ meeting in the meantime. And none of it matters.

As of last Friday, with an already-extended deadline looming large, only 0.28% of Data Duplication’s shares had been tendered to EMC’s offer. That’s tantamount to a vote of “no confidence” in the deal…. it looks like Data Domain’s owners prefer to see the competing NetApp (Nasdaq: NTAP) offer coming to fruition…EMC would have to cough up more cash to win this battle. Even then, EMC might have to resort to downright hostilities if it really wants Data Domain…That’s just not a healthy way to get hitched, unless you want to start planning the divorce party already.

Acrimony is nothing new between NetApp and EMC, of course, but the lack of interest from Data Domain shareholders as pointed out here is quite interesting. After all this, might the original news we reported on a month ago might still wind up being the story, give or take a few hundred million dollars?

Curiouser and curiouser.

Broadcom raises tender offer for Emulex

The saga of Broadcom and Emulex continues. Broadcom has upped the ante to $11.00 per share of Emulex ($9.25 per share was the previous offer), and dropped litigation against Emulex in a Delaware court, according to an Emulex press release this morning.

Emulex said it would review the revised offer, but I think it’s a long shot they’ll accept - it’s clear the Emulex board doesn’t want any part of merging with Broadcom. In the meantime, Emulex is advising its shareholders to take no action while it reviews the new bid.

Symantec and CommVault tussle over TheInfoPro results

Nothing like a good vendor fight to keep the week interesting. This time, it’s Symantec and CommVault who have been going at it in press releases and statements after TheInfoPro released its Wave 12 Storage Study on Monday.

CommVault put out a press release shortly after the study was released trumpeting the findings that were flattering to its Simpana product (as virtually all storage vendors do when reports like this come out). The statement that drew Symantec’s ire was this one: “CommVault garnered a top spot in attracting new customers from competing solutions, according to TheInfoPro™ Wave 12 Storage Study. Twenty percent of respondents reported they had switched to CommVault from another vendor in the past year.”

Symantec responded by firing off this statement to press through its PR agency:

The actual figure is 0.2%, since TheInfoPro’s sample size was 848 and only 2 had switched. Also, only 10 respondents mentioned Commvault. For comparison, 66 mentioned Symantec, 86 mentioned NetApp, and 194 mentioned EMC. The full report with a chart and list of vendors and customer sample size is available from TheInfoPro.

Roughly 5 out of the 66 Symantec customers reported switching to Symantec solutions.  Clearly, this is not an accurate comparison, or a valid statistic and CommVault seems to be clutching at straws in an attempt to seem relevant to the market.

Rowr! Saucer of milk, table two!

Responded CommVault VP of marketing and business development Dave West:

This study is indicative of what we are seeing in the market and reflects historic trends within our customer base. In addition to sustaining strong customer loyalty, CommVault is experiencing notable year on year growth. We continue to see strong Simpana software adoption by former customers of competitive offerings. In May we announced we surpassed 10,000 customers; more of half of these previously were Symantec customers.

 
I don’t know how many CommVault customers came from Symantec, but it’s worth noting CommVault’s revenues actually dropped a bit year-over-year last quarter although it did grow for its entire fiscal year.

As for the spat over TIP numbers, TIP spokesperson Bernadette Abel clarified in an email to Storage Soup:

The percentages noted on this data point are per vendor and not an overall comparison among all vendor mentions. 20% of current CommVault customers interviewed said that they switched to CommVault from a competing vendor.

The press release put out by the organization said that it garnered a top spot, not the top spot as based on the 20% conversion rate.

Bottom line? Regardless of the statistics, these guys are clearly under each other’s skin. CommVault has been aggressive about taking share from competitors, and it would appear it has at least succeeded in getting some attention from them. The real winners in all this should be end users, who stand to benefit from better pricing when competition is intense.

HDS says it beat up EMC in 2008

As a subsidiary of Hitachi Ltd., Hitachi Data Systems (HDS) earnings and revenue numbers often get lost in its parent company’s extensive reports. But HDS execs strutted their financial stuff for press at the BD Event in Boston Tuesday, saying fiscal 2008 financial results show HDS taking market share from EMC, especially in the high-end disk array market.

Eric-Jan Schmidt, vice president of corporate marketing, said HDS grew revenue 1% to $672.8 million year over year last quarter while other large storage vendors declined. Storage software grew “in the high double-digits” year over year, high-end storage systems in the single digits, and modular storage was flat year over year, according to Schmidt, who did not give specific numbers for those products.
Total HDS revenue for fiscal 2008 — which ended last quarter — increased 11% to $2.864 billion.

Schmidt said it was specifically EMC that HDS had taken market share from in 2008, citing an IDC study that showed HDS edging to just under 30% market share in high-end disk arrays in 2008 while EMC fell to just over 25%. Schmidt attributed the growth in sales in part to a sales reorganization in February 2008, when former Unisys vice president and general manager of sales and service Randy DeMont was promoted to executive vice president. (Schmidt left EMC, where he worked in the Centera product division, in September for HDS.)

Schmidt added that HDS has seen increased success with its USP-V virtualization controller and storage software in this economy because they can be used to repurpose existing third-party storage. He said 15% of the 12,600 USP and USP-Vs in production so far have third-party storage virtualized behind them.

However, while HDS had a few things to crow about, Hitachi Ltd. did not fare so well, posting a record $8.1 billion loss for the year. That’s not a Hitachi-specific record – that’s the biggest-ever annual loss by a Japanese manufacturer, according to a report by the Associated Press. According to another report released Tuesday morning on the Dow Jones news wires, Standard & Poor’s Ratings Services cut Hitachi Ltd.’s (HIT) ratings to below-average credit quality.

In the meantime, HDS may have something up its sleeve for the Hitachi Content Archiving Platform (HCAP) product based on its acquisition of Archivas in 2007. “Our archive platform will morph into something different over the next year,” said Asim Zaheer, HDS vice president, product and competitive marketing.

HCAP is already touted by HDS as a unified repository for multiple federated sources of content. HCAP uses a hierarchical file system, making it different from object-based or content-addressable storage (CAS) products, like Caringo Inc.’s CAStor or EMC’s Atmos or Centera. However, given the “federation” aspect of HCAP (also a hot buzzword at this year’s EMC World in discussions of cloud storage), my guess would be a scale-out system for active unstructured content in addition to where HCAP is already positioned, in secondary storage archiving. Zaheer would neither confirm or deny my suspicions.

VCs and IT execs discuss IT’s brave new world in Boston

Panel moderator Andrew Williamson of Alexander Dunham Capital Group Inc.
leads a discussion about IT industry consolidation and innovation at The BD Event
on Monday afternoon.

Venture capitalists and business development types of all stripes met in downtown Boston today for the first BD Event, a new networking conference for vendors in the storage, security and virtualization markets. According to a panel discussion this afternoon, the IT market can expect further consolidation along the lines of Sun/Oracle and NetApp/ or EMC/Data Domain, but VCs said that will make room for new, more innovative companies, especially in cloud storage.

The panel included two executives from storage vendors with M&A experience: John O’Brien, senior director of corporate development at EMC; and Peter Levine, senior vice president and general manager at Citrix, and reps from three venture capitalist firms: Mark Rostick, director of Intel Capital,; Ash Ashutosh, partner with Greylock Partners (Ashutosh also sold AppIQ to HP a few years ago); and Charles Curran, general partner at Valhalla Partners, a VC firm that backed Nirvanix, LeftHand Networks, and Sepaton.

According to Levine, the IT industry can expect more heavy consolidation throughout this year, “but that consolidation is more financially driven than customer-driven,” he said. “I don’t think IT buyers really want one virtual integrated stack - the last thing customers want is IT lock-in.”

Nonetheless, he added, “Consolidation absolutely will happen. The big survivors, to grow, have to start getting into areas they weren’t in before, and without question that verticalizes the market.”

(As for who the likely candidates are for further consolidation - no one I talked to at the event had heard anything about actual talks, but there was a lot of chatter at the conference about IBM/Brocade and Cisco/NetApp acquisitions).

Levine and O’Brien said smaller acquisitions at their own companies are being scrutinized more and more carefully these days. Smaller companies take longer to add to an acquiring company’s bottom line and tend to raise operational costs during integration, Levine said. Instead, Citrix will probably focus more on new partnerships with promising small companies. EMC’s O’Brien said that EMC has done just two small asset deals so far this year (aside from its $1.8 billion bid for Data Domain).

Panel moderator Andrew Williamson of Alexander Dunham Capital Group Inc. said the percentage of asset sales among new acquisitions has risen in the last six months to 30%. That type of deal represented 16 to 20% of M&A activity in 2008. Meanwhile, the number of VC firms funding startups has declined since 2007 as has their average investment in new companies, along with the revenue multiples they can expect as a return when their portfolio companies are sold or go public.

In other words, get ready for a world in which the number of major vendors will shrink, but there will be less funding for the types of companies that popped up between 2000 and 2003 with a burst of innovation that led to a flurry of IPOs and acquisitions over the last few years.

However, the old rule still applies - “Big companies can’t innovate at the level of startups,” said Valhalla’s Curran. The VCs assured the audience that new storage and security products would still be coming down the pike.

Cloud storage and software will be king

The VCs on the panel agreed about where the money’s going in storage these days. They all indicated they were doing few if any deals involving hardware systems. “It’s less capital-intensive,” said Curran, adding that the shift towards IP networking in the enterprise data center and virtualization would be the biggest trends going forward. Ashutosh also said he was most interested in software companies. “The trend is shifting away from boxes and to the disruptive nature of virtualization and the cloud,” he said. Intel’s Rostick said his company would invest in at least one more security and one more storage company this year, and would also be focused on the cloud, virtualization and what he called “I/O complexity.”

EMC’s O’Brien said he’d been “well coached to stick to [EMC CEO] Joe [Tucci]’s script” when it comes to Data Domain, and he wouldn’t get specific about what other areas EMC may be eyeing for acquisitions this year. He did say EMC also would focus on virtualization and the cloud going forward.

Some of the cloud technologies that come out in the next year or so may look familiar to IT users, but optimizing technologies for cloud deployment will become its own area of expertise, according to Ashutosh. “There’s an emerging trend of innovation around delivery and business model - not just new ideas in technology, but also business,” he said.

Storage vendors add deal-sweeteners

Storage and IT in general may be faring better than some other markets, but times are tough all over, and opening up wallets is a difficult task everywhere. Storage vendors are responding to the situation by offering deal-sweeteners they hope will boost users’ confidence.

NEC’s deal is the most dramatic - a 30-day free trial for its D-Series storage area networks (SANs). The 30-day period does not include shipping, installation or testing time - the customer determines when 30 days of production use have passed. If they are not satisfied, NEC will handle the de-install of the SAN and data migration to another array, as well as the return freight.

None of those services will come at a cost to the customer, according to Josh Eddy, director of product management for D-Series. “Those terms are what we’ve put in front of our lawyers and our customers,” Eddy said. “It’s that straightforward.”

D-Series is sold by several undisclosed OEM partners in the media and entertainment space, but only NEC-branded versions come with the guarantee. “It hasn’t been the most established name in the U.S., and we want users to be confident that there aren’t risks in using this storage,” he said.

In the current economy, companies are looking to avoid new capital expenditures regardless of how good the deal is. Market research and storage vendors’ earnings reports for last quarter show people are investing in products that allow them to repurpose or squeeze more into systems they already have, rather than buying new arrays.

But many in the industry also expect something of a recovery toward the second half of this year, and data growth won’t slow under these economic conditions, Eddy pointed out.

Other vendors are offering customers enticements to use their existing software and licensed features. Through its Switch It On program, Hitachi Data Systems is offering customers free virtualization software licenses through the end of the year if they use it to attach another vendor’s storage to the HDS UPS-V platform. HDS will give free licenses to its basic virtualization OS, Hitachi Dynamic Provisioning, Tiered Storage Manager and In-System replication software.

Meanwhile, Nexsan sent out its own deal-sweetening announcement this week, saying that customers who activate its AutoMAID disk drive spin-down feature (also available with a 30-day free trial), they’ll receive complimentary spare drives.

Look for more vendors to continue to jump on this bandwagon alongside new product announcements in the coming weeks.