Financial analyst looks at lessons of 2003; analyst insight.

The year 2003 is likely one that most IT companies will want to forget. Nonetheless, according to Kaushik Roy, enterprise storage analyst for Susquehanna Financial Group, when history turns its eye on 2003, it will identify several notable achievements and milestones that made a long-term impact on the enterprise storage business. Here is a rundown of these events and a preview of what might drive the enterprise storage market in 2004.

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* Storage proved its sensitivity to spending upticks and downticks. "This was really the first time there was a true up-and-down cycle for enterprise storage," said Roy. "The last time spending fluctuated, in the early '90s, there was no storage market per se. Storage was part of the server market." What we saw was that storage stocks were probably the last companies to feel the pinch when spending started to dry-up and the first to feel mild bumps in spending on their income statements as well as in their stock prices. As a result, Roy continued, "2003 will be an important data point in helping investors understand the next spending cycle in IT."

* The August 2003 blackout reminded CIOs that disaster recovery and business continuity need to be at the top of their priority lists. "In many ways it was a very friendly reminder," Roy explained and added that while many large companies already have disaster recovery and business continuity built into their infrastructure, "many smaller and middle market companies with 100 to 500 employees are now putting plans in place and this may expand the overall size of the market."

* Best of breed started to gain traction again. Buckling under the load of budget cuts during 2001-2002, Roy said many CIOs, "Gave up the ghost on best of breed hardware and software. They simply went with solutions that were 'good enough.'" During 2003, however, as CIOs budgets started to loosen a little bit, the best-of-breed products started to gain traction again.

* EMC caught up again. Although storage giant EMC had lost some ground to Hitachi Data Systems in 2002, the refreshing of the company's Symmetrix product line reestablished EMC's dominant leadership position.

Roy explained that based on events in 2003--and changes in the overall economy--2004 will likely see the following trends:

* Storage will be a growth sector. According to Roy, requirements for storage capacity are growing 40%-60% annually and that storage spending will grow at a rate that is perhaps as much as 200 basis points higher than the overall growth in IT spending. "In addition to hardware manufacturers and software developers, storage consultants will benefit from this uptick," said Roy, "because the expertise to put all the disparate solutions together is at a premium."

* CIOs will be talking about Information Lifecycle Management. "Information Management is the point of pain for most CIOs. The rapid expansion of different storage systems and networks, compounded by high costs to manage those systems and networks, calls for better storage management tools." He added that the overlay of new regulations such as Sarbanes-Oxley and HIPAA contribute to the need for good management tools and the larger concept of Information Lifecycle Management. "The current paradigm for information management is about generation and preservation. The new paradigm is about generation, preservation and deletion." Roy said that companies are required by law to archive certain types of data. "While companies want to be compliant, they also want to discard items like e-mail as soon as the law allows because it has proven to be a strong liability as well."

* iSCSI and Serial ATA technologies will emerge during 2004. "With iSCSI technology, CIOs can run storage connectivity over now pervasive Ethernet networks, and in the process reduce the overall cost of ownership." Roy added that gains in iSCSI technology would come at the expense of storage networks. Furthermore, Roy predicted that newer Serial ATA technology will replace older ATA technology during 2004.

"The serial ATA technology results in more reliable drive performance and better functionalities," he said. "This enhanced performance of ATA drives, in combination with an increase in demand for backup-to-disk appliances using Serial ATA drives, will push serial ATA technology to the fore-front in 2004."

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