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Storage Market Shrinks After 21 Years

Posted on Thursday, Oct 29th 2009

According to a report published earlier this year by IDC, the $2.8 billion storage market, which includes technologies such as device management, replication, data protection, backup, and archiving, shrunk 5.2% over the year after 21 consecutive years of growth. EMC remained the market leader with 22% market share followed by Symantec with 19% and NetApp with 8%.

EMC (NYSE:EMC) recently announced its Q3 results, but even though the company exceeded market expectations, the results did not do much to improve the stock’s valuation. Q3 revenues of $3.52 billion fell 5% over the year and beat the market’s expectations of $3.45 billion. EPS of $0.23 also managed to beat the expected $0.21.

By segment, Product sales contributed 63% of total revenues and declined 12% over the year. Services revenues managed to grow 8% over the year and brought in the balance 37% contribution. U.S. revenues grew 13% sequentially and contributed 54% of total revenues, while International revenues grew 3% sequentially.

Storage revenues fell 7% over the year. However, with data storage spending picking up gradually, revenues from the segment grew 9% sequentially. Analysts are hopeful that demand for servers and storage will improve in 2010. Information Infrastructure revenues also grew 8% sequentially. EMC is seeing traction with the V-Max, offering, which provides differentiated information storage platform in line with customers’ priorities of consolidation, virtualization, and improved efficiency.

EMC is also growing its security business through tie-ups. The company recently tied up with First Data Corporation to seamlessly embed RSA security encryption capabilities into First Data’s infrastructure. The service will be offered to First Data’s 5.4 million retail customers.

EMC is focusing on product launches, technology integration, and product enhancements across their portfolio to address the slowly improving IT spend. The company is investing in private and public cloud technologies. Within the private cloud, they are working to provide technology and support for customers to move to fully virtualized data centers. They are also looking at service provider partners to establish external clouds that will be fully compatible with internal clouds.

Through its partnership with Echo System, EMC will enable its customers to establish their own federated clouds, which will grant customers flexibility and efficiency by allowing them to distribute IT workloads across both internal cloud data centers and the external cloud data centers of service provider partners. EMC will also offer a portfolio of SAS spaced solutions that will operate on the cloud infrastructure, the first being Mozy, a company that provides online PC backup.

EMC is taking the benefits of virtualization and fully protected compliant information storage to the desktop and mobile market. Finally, they are focusing on backup, recovery, and archive solutions, which they have estimated to be a $10 billion market. They are moving to backup and recovery from tape to disc. The company sees a great opportunity in the data duplication technology, which is estimated to be used by only 8% of backup recovery solutions. The Data Domain acquisition made earlier this year should help EMC to expand its reach in this market. Ocarina Networks is another prospect that earlier this year I recommended EMC acquire. There has not been any news on this front, but last month Ocarina did join EMC’s Velocity Technology and ISV Program, the goal of which is to improve the interoperability of Ocarina’s content-aware optimization technology and EMC’s storage networks.

EMC projects revenues of $4 billion for Q4 with EPS of $0.30 compared with the market’s expected revenues of $3.97 billion and EPS of $0.29. For the fiscal, they are estimating revenues to be $13.90 billion with EPS of $0.87.

EMC’s stock is trading at $16.89, taking its market capitalization to $34 billion.

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