Disk Array Capacity and Sales Still Growing at Historical Rates

March 24, 2008 Timothy Prickett Morgan

There may be a lot of things that are slowing down in the information technology sector or among businesses in general, but enterprise-class data storage is not one of them. In fact, according to recent reports from IDC, sales of disk storage systems kept humming along at historical rates in the fourth quarter of 2007 despite some of the turbulence in certain sectors of the global economy in various geographical areas.

In many ways, the disk array market is as complex as that of the systems that they plug into to feed them the data they need to do their processing. Disk arrays span from relatively modest, integrated RAID arrays inside servers and pretty much standard these days on up to sophisticated arrays that provide virtualized links to servers, thin provisioning, snapshotting, clustering for scalability, and other high-end features. Sales of hybrid iSCSI-capable disk arrays, which act like storage area networks but which use merged Ethernet network and SCSI disk protocols, are fast and helping to pull the market up. But make no mistake. More traditional Fibre Channel storage area networks and plain-vanilla Ethernet network-attached storage arrays are also selling like hotcakes.

IDC reckons that sales of disk arrays of all kinds and types–both internal to servers and external to them–grew by 7.6 percent to $7.5 billion in the fourth quarter. (IDC measures factory revenue by vendor, so this figure does not include reseller channel markup, which combined with factory revenue would give you the end user expenditures on disk storage in the quarter.) External array sales rose by 9.8 percent in the quarter, hitting $5.3 billion, which means sales of internal disk arrays had to fall by 6.7 percent to $2 billion in the final 13 weeks of the year. This revenue trend for internal disk arrays has as much to do with inexpensive and often integrated RAID disk controllers inside servers these days as it does for the increasing capacity, feature set, and price of high-end disk arrays. IDC believes that, all told, vendors shipped 1,645 petabytes of disk capacity in the fourth quarter, up 56.3 percent compared to the total capacity sold worldwide in the fourth quarter of 2006.

As has been the case in past quarters, the growth rate of storage array revenues and shipments is outstripping sales and shipments for servers. IDC said a few weeks ago that, in the fourth quarter, server sales across all platform types and form factors rose by 2.4 percent to $15.7 billion, and that shipments rose by 9 percent. As in past quarters, shipments and sales of Linux and Windows machines are driving the growth in the server space. Just as a thought experiment, and ignoring the dampening effect on shipments and revenues of virtualization for servers (which has been underway for several years) and on storage (which is really just getting started with thin provisioning and other technologies), at the revenue growth rates seen in the fourth quarter of 2007 it would take until the end of 2022 for disk array revenues to catch server sales–and both would be clipping along at $22 billion. This is not very likely for several reasons. It seems very unlikely that server sales will ever go above $20 billion a quarter unless home users start buying servers in droves, and even then, the corporate server market (which is what I am talking about here) will still virtualize, consolidate, and generate less revenue than many think. Revenue growth has been slowing for years after a post-recession rebound a few years ago, but it might be heading into another decline because of virtualization very soon, despite a healthy upgrade cycle for virtualization-capable machinery. Storage arrays, while sophisticated, will also have to be used more efficiently, but the virtualization wave has not yet taken off here to the same extent as it has on servers. It seems far more likely that servers sales will slow and then decline as virtualization really takes hold, and storage sales keep on a-going. And in this scenario–and again, provided storage sales hold up–revenues could cross at around $13 billion to $14 billion in 2014 or 2015 or so.

In the meantime, storage vendors are pretty happy folk. “The disk storage systems market exited 2007 strong, indicating that data storage remains a crucial component to the successful execution of enterprise business,” explained Brad Nisbet, the research manager at IDC responsible for putting together the quarterly disk market analysis. “Despite the current, global economic uncertainties, the disk storage systems market is benefiting from a wide variety of drivers, ranging from the simple need to store ever-increasing volumes of business data to the more sophisticated objectives around consolidation, virtualization, and ease of management.”

In the quarter, EMC remained the leader in external disk array sales, with $1.2 billion in sales, up 13.3 percent, growing considerably faster than the overall market. IBM came in second place in IDC’s revenue rankings for external disk arrays, with $945 million in sales, up only 5.6 percent compared to the year ago quarter. Hewlett-Packard had the third slot in the rankings for the quarter, with sales up a mere 2.1 percent to $645 million, with Dell up 15 percent to $449 million and Hitachi up 15.5 percent to $402 million. Network Appliance was the fastest growing supplier of external disk arrays in the fourth quarter, with sales up 19.3 percent to $399 million. Other vendors in this diverse market, including some of the biggest innovators, accounted for $1.28 billion in sales, up 8 percent. It is interesting to note that Sun Microsystems has not yet made the rankings in external disk array sales.

In terms of total disk array sales, IBM came in first with $1.72 billion in sales, up only 3 percent, followed by HP with $1.36 billion in sales, up only 1 percent in the quarter. Clearly, dropping revenues for internal disk arrays is hurting IBM and HP, and as the volume leader in the server space, you would think HP would have been hit harder here. But no. These numbers imply that IBM’s sales of internal disk arrays fell by just under 15 percent to $510 million, while HP maintained sales of $708 million for internal disk arrays, getting what little growth it did have in the quarter from external units. EMC doesn’t sell internal arrays, but Dell does. The company’s internal disk array sales rose by 8.3 percent in the fourth quarter to $222 million, a little more than half the growth rate (but half the revenue volume) of external arrays. Anyway, Sun posted total disk array sales of $428 million, up 16.1 percent (IDC did not provide details on external array sales, but it was probably a third or so of that figure), while Hitachi had a smidgen on internal disk array sales thanks to its blade servers, pushing its total global disk array sales to $410 million (up 14.9 percent) in the quarter. Other vendors accounted for $1.72 billion in overall disk array sales worldwide in Q4, up 8.6 percent and besting the overall pace of the market by a tiny bit in terms of revenue growth.

For the full year, external disk array sales rose by 7.2 percent to $18.5 billion, while sales of all types of arrays climbed by 6.6 percent to $26.3 billion. That implies that sales of internal disk arrays rose by 5.2 percent to $7.8 billion for the year, which tells me that something really remarkable must have happened to IBM in the fourth quarter for its internal array sales to fall so dramatically. Maybe customers just bought leaner arrays because they were stingy, or maybe IBM made a lot of discounts to move products inside its X64 and Power server lines.

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