UP AND DOWN, TOO.

Mark Ferelli

Hal Glatzer

The paradox of the storage market

MARK: I've always had the feeling that mass storage may be resistant to swings in the general computer market.

HAL: You never outgrow your need for storage. But we should look at the question more closely before we make any generalizations.

MARK: Yes, my grandmother always said: "Never make generalizations."

HAL: Uh huh.

MARK: She also said "Never ignore relatively inelastic demand."

HAL: I gather she was an economist! Well, nowadays-- and we're talking in early April--everybody from the President on down is saying we're in a "down" market.

MARK: Maybe not. One analyst told me he's predicting a $40 billion mass storage industry by 2003. That's raw figures, of course, but pretty nice figures if they turn Out that way.

HAL: It'll take a lot of hardware to get up there!

MARK: It won't be only hardware: it'll be drives, connectivity, automation, software development and implementation, plus services, of course. That $40 billion is an all-encompassing figure.

HAL: Well, it seems optimistic to me. But you never can tell what the mark up in services really is. How much does it cost to configure a SAN? To borrow a phrase from the medical-insurance industry, there's no "usual and customary fee."

MARK: Of course not. You have to decide where you're going to start the meter running. Do you start with needs-assessment? Or does "service" just mean managing an existing installation on the client's side of the firewall? And that's just on the front end. Technology changes in SAN connectivity will also impact overall pricing.

HAL: Is that what's being called "storage over IP?"

MARK: Yes. It reflects a willingness to move from, say, Fibre Channel to Gigabit Ethernet. There's a significant delta in the per-port cost. Different strokes for different folks.

HAL: Well, the hardware side of storage--the devices themselves--are certainly facing a shrinking market. The demand for PCs and servers is off.

MARK: But aren't HDD sales rising? TrendFocus just reported that actual sales in 2000 were 14.5 percent above sales in 1999. Drives measuring 1.8-inch or less--meaning drives for laptops--did really well, rising 81.8 percent. Sales of 2.5-inch drives went up 22.3 percent, and sales of 3.5-inch drives went up 11.7 percent.

HAL: Vendors are spoiled by years of even larger double-digit growth. And it's ironic that only in the computer industry could sales increases like those be considered as leading to a down market.

MARK: That's because the price wars in the PC market in 1998 and '99 boosted demand for HDDs to go in all those PCs. I think that was a spike that's not going to be repeated.

HAL: But then again, have you noticed: nobody talks about Internet appliances without disk drives any more? There are still OEM opportunities.

MARK: I'm guessing, now, but it sounds like the HDD vendors are accumulating inventories again.

HAL: I agree. Those "actual sales" are actually channel sales--not end-user purchases. But the vendors are probably negotiating new OEM sales for 2001 and 2002 deliveries.

MARK: That's good news. The only sector that's really healthy these days is storage automation, meaning RAIDs and tape automation.

HAL: I'm worried that optical isn't taking advantage of that opportunity.

MARK: Getting back to HDDs, I wonder how aggressive the new Maxtor will be, now that they've merged with Quantum. Will we see the same zany, bare-bones pricing tactics that we've seen in past years, whenever HDDs hit a tight market?

HAL: Who knows? If there's a bright spot for HDD vendors it's probably in the new categories of products that incorporate HDDs invisibly.

MARK: Like TiVO and the television time-shifters?

HAL: Yes, and MP3 players. And portable devices for holding digital photos--have you seen them? Think of it as tossing your negatives into a shoebox. You cable the camera to a battery-powered drive, and transfer your pictures, and erase your camera's memory. That way you don't need to buy hundreds of megabytes worth of solid-state cards any more.

MARK: That's consistent with a push I've seen coming from what I call "cultural" databases--meaning personal files, photos, videos, music, bookmarked Web sites . . . things like that. The individual computer user is getting to be a very aggressive consumer of storage.

HAL: Let's see if our readers agree: If you think the storage industry is going to be saved by the supply side--by OEM sales to new products with built-in storage--email me at [e-mail].

MARK: And if you think that it's the demand side that's going to lead the next uptick--meeting the needs of users, especially power users--then let me hear from you at [e-mail].