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Storage sales improve, still not 'normal'

When storage revenue slipped in the early part of 2013, vendors predicted sales would pick up in the second half.

We saw some evidence of that this week when Brocade and NetApp reported earnings for last quarter. However, there are still no signs of a full-blown recovery.

Brocade and NetApp finished their last quarters at the end of July, which brings them one month into the second half of the year. Both improved over the previous quarter, but didn’t exactly hit home runs.

Brocade, which depends on storage array sales for its Fibre Channel switches, reported $314 million in SAN revenue last quarter, down two percent than last year. That’s not great, but Brocade expected SAN sales to fall from eight percent to 11 percent in the quarter, following a seven percent year-over-year drop in the previous quarter. And the storage results were better than the eight percent drop in its network switching revenue.

NetApp’s $1.52 billion in total revenue was a bit below expectations, mainly because its $931 million product revenue missed the mark by more than $20 million. But NetApp executives said their five percent year-over-year growth in total revenue and four percent rise in product revenue ran ahead of the overall storage market this year. It certainly ouptaced NetApp’s one-percent growth in its previous quarter.

Brocade CEO Lloyd Carney said storage sales are clearly on the upswing.

“We tend to be a proxy for the overall storage market, and there are definitely indicators that there is a rebound in sight,” Carney said during Brocade’s earnings call. “The storage market is still softer than it was a year ago, but we are receiving positive indications from our partners that end user demand is improving.”

Brocade’s forecast of an increase in SAN revenue of from one percent to four percent from last quarter is a sign of that soft recovery.

Brocade CFO Daniel Fairfax added that while storage sales are not back to normal, the “SAN is dead” predictions that followed Brocade’s last earnings call were premature.

“We’re a little bit cautious because we haven’t seen the green light that things have returned to normal in storage,” he said. “But we’re optimistic.”

NetApp CEO Tom Georgens said on his earnings call that he was pleased with his company’s sales last quarter, but wouldn’t attribute that to an industry-wide rebound. He said NetApp sales were driven by its recently released clustered Ontap operating system and new flash products.

Georgens said NetApp has sold more than 300 EF540 all-flash arrays that launched this year, sales of its Flash Pool caching technology increased nearly 50% year-over-year, and more than 60% of NetApp FAS arrays ship with either Flash Cache or Flash Pool.

He said NetApp’s results came “despite the macro uncertainties and constrained IT spending environment.” When asked if the storage market was picking up, Georgens pointed out that other storage companies have not made big strides yet.

“This was a pretty strong market share quarter for us,” he said. “I want to be careful about the industry at large … I wouldn’t go as far as to say that we’ve got an economic tailwind driving us. I think things probably feel a little bit better than they were a year ago, but I wouldn’t use the word dramatic turnaround or anything like that.”

NetApp counts on the federal government for a big piece of its sales, and Georgens said he remains concerned about the sequester fallout.

“I think there’s a little bit of concern about what it’s actually going to play out there,” he said.

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