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STEC overstock raises red flag about SSD adoption

 SSD supplier STEC’s stock price has taken a dive since the vendor reported last Tuesday that EMC will carry over its 2009 inventory of Flash drives into 2010. Shares have fallen almost $9.00 to $13.18 at today’s close. According to a report from MarketWatch:

Much of the carryover involves STEC’s Zeus IOPS SSD products. EMC makes up about 90% of STEC’s business for the Zeus IOPS drives, and had placed an order for $120 million of the drives for the second half of this year.

STEC officials said that about $55 million of that order has been delivered, and the rest would be shipped before the end of year.

A flurry of class action lawsuits have been filed accusing STEC executives of misleading investors before making their revelation last Tuesday. This all leads me to wonder if the industry has been wrong about SSD adoption overall.

All EMC would say in a statement released through a spokesperson was “EMC is pleased with its SSD demand and growth. In Q4, EMC will introduce unique FAST (fully automated storage tiering) capabilities, which are expected to increase SSD growth and demand even further.”

Does this inventory carryover send a signal about wider SSD adoption in the market, given how dominant STEC’s share is (and EMC dominates its business)? I asked a couple of analysts for their opinions.

“Well, what I have been hearing is that EMC is giving SSD away for free to try to spur adoption, but so far it doesn’t seem to be working — it’s too costly, and too wasteful without some type of FAST capability,”  Forrester Research analyst Andrew Reichman responded in an email. “SSD as a performance add-on is not popular in this economy… It’s interesting to see that STEC can’t make a go of this business even though they have a number of the major storage vendors signed up as partners. That says to me that it’s not competition, but the whole category being slow so far.”

Added Taneja Group analyst Jeff Boles, in another email, “while we’re in the midst of an unusual market that likely over-penalizes STEC for perceived risk, while over-endorsing other companies for perceived value, I remain cautious about the speed of SSD adoption.”

But, he added, the newness of SSD could be creating a vicious cycle of perceived risk.

“What the market needs is a good round of commoditization, brought on by integration of some of this intelligence into the storage system itself,” Boles wrote. “At that point, obsolescence will start to look a bit more unusual, and the roadmap for future devices a little more predictable. After all, if your XYZ array had solid state intelligence in it, and you were buying highly commoditized drives that only changed with the density and performance of the flash memory itself, then there seems to be less risk that your flash investment could be rapidly outdated by the next rev of a drive controller.”

As always, the peanut gallery is invited to weigh in.

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