Storage industry braces for 2009 spending slowdown

The storage industry is doing better than other IT sectors, but some analysts expect to see belt-tightening in 2009 storage budgets. A picture is emerging of sluggish spending and innovation in the storage marketplace.

Sluggish storage spending, slowed innovation and longer product development cycles could all be part of the 2009 picture for the storage industry.

In the wake of turmoil in the financial markets, storage industry and Wall Street analysts are revising their predictions for the storage market in 2009. With Fortune 1000 companies already stocked up on storage, some analysts are saying storage budgets in 2009 may be half of what storage managers are used to. According to a report issued this week by Forrester Research, the third quarter for IT companies remained relatively stable because most vendors are still working through a sales pipeline. But poor sales are predicted for all IT vendors in the fourth quarter.

The report warned that software and services vendors will have on average 3% to 5% growth instead of the 9% to 12% growth they've seen earlier in 2008. If the downturn lasts until 2010, U.S. IT market growth in 2009 would slip to 2% to 3% in annual growth, with several quarters of declining purchases, instead of Forrester's current projection of 6% for 2009. Global IT market growth would have a similar deceleration in that scenario, moving from 7% to 8% currently projected for 2009, to much slower growth of 3% to 4%.

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TheInfoPro also released results of its Wave 11 storage study, which found that Fortune 1000 companies already stocked up on storage when times were good last year. "Essentially, storage decisions makers anticipating future risk accelerated infrastructure upgrades to ensure they could both retain budget levels and operate in a lower budget environment in the future," according to the study.

Financial analysts paint a gloomy sales picture for storage through the remainder of 2008 and at least early 2009. "I lowered my numbers across the board for IBM, EMC/Dell and HP," said Louis Miscioscia, managing director for Wall Street analyst firm Cowen and Company. "Storage is still one of the better areas in the tech budget … but if the overall budget is being brought down, storage will still grow from year to year, but now it will grow at, say, 4% rather than 8%."

In a note to clients this week, Robert W. Baird analyst Jayson Noland gave a slightly more optimistic forecast. "Broadly speaking, we don't view enterprise storage as immune to a recession, though we do view this segment of the IT market as more resilient to spending cuts and generally more defensible than many categories," he wrote.

Storage is still one of the better areas in the tech budget, but if the overall budget is being brought down, storage will grow at 4% year to year rather than 8%.
Louis Miscioscia
managing directorCowen and Company
There are early signs of trouble. Today, storage software vendor FalconStor lowered its forecast for the year by nearly $20 million, blaming economic conditions. It now expects revenue in a range of $85 million to $87 million from $100 million to $104 million.

Private companies could also feel the sting, not only from lower sales but from reduced spending from the venture capitalists that back them.

"Venture capitalists are going to be very tight with their portfolios and where they invest," said Enterprise Strategy Group analyst Brian Babineau. "Long-term, I think people are going to have to be more patient with technology and using it. If you are a customer and you have a problem … it may not be solved in 30 days by a startup or a big vendor."

New storage technologies may take longer to emerge

This year the industry has been poised on the edge of a number of technology refreshes, including a move from hard drives to solid-state drives (SSDs) in some markets, and the advent of 8 Gbps Fibre Channel, 10 Gbps Ethernet and Fibre Channel over Ethernet (FCoE). These trends will probably slow considerably over the next year, said Taneja Group analyst Jeff Boles.

Boles predicted there will be a spectrum of products that remain in demand in a down economy, with application-specific backup devices and other data protection products leading the pack. The most impacted products will be those that requiring complex infrastructure projects, which includes FCoE. "I think for both FCoE and 10 Gigabit Ethernet you're going to see localized deployments, rather than the kind of forklift upgrades people are envisioning right now," he said. As for 8 Gbps Fibre Channel, Boles added, "even now there's very little drive to get 8 Gbit just for 8 Gbit. I think right now it's marching lockstep with arrays, which will slow down some but generally march steadily on." Customers with I/O-intensive environments might see SSDs as a means to cut power, cooling and management costs, and worth the investment, Boles said.

"Hard-to-ROI initiatives are most likely to be pushed out in our opinion, even if they are viewed as strategic by a certain business unit," Noland noted.

A cloud computing boost?

At least one emerging storage company sees an opportunity in this market. "When credit is tight, everyone from municipal governments to the best capitalized financial institutions must find ways to avoid outlays of precious capital ahead of the reality of customer collections," wrote Billy Marshall, cloud computing virtual appliance maker rPath's founder and CEO, in a letter to the press this week. "More and more of these customers will be sifting through their application portfolio in search of workloads that can be offloaded to the cloud."

Analysts say the jury is still out on this possibility. "It might be a little bit trickier for service providers to get the capital outlay they need in this economy," said Taneja Group founder and consulting analyst Arun Taneja. "But if there's business staring them in the eye, I don't see why there'd be no way for them to buy the right equipment."

Enderle Group founder Rob Enderle said he doubts there will be a mass move to the cloud, if only because an already conservative storage market will probably become even more conservative as the recession deepens. "Risk aversion will slow down a move to the cloud," he said. People are scared and risk averse, and the cloud is something new and different."

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