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Data storage vendors face 'uncertain' future during pandemic

COVID-19 has thrown IT and storage spending into pandemic mode, making it hard for vendors and IT teams to get a handle on when they'll rebound.

Just as COVID-19's impact on health affects geographic areas and types of people differently, the pandemic also affects adoption of storage products and technologies in various ways.

And the pandemic's pattern of spikes and plateaus also makes it difficult to predict the future for storage and other IT disciplines. Recent earnings reports for the second quarter of 2020 showed even data storage vendors that have maintained decent sales still don't know what to expect -- although they are cautiously optimistic.

"It's clear that the worst is behind us," Quantum CEO Jamie Lerner said last week during the backup and file system vendor's earnings call.

But little is really clear now about the immediate future.

From the earnings reports of Quantum and drive vendors Western Digital Corp. (WDC) and Seagate Technology, it appeared cloud providers and governments are buying storage, and larger companies are adding capacity for archive and disaster recovery data. However, smaller enterprises and SMBs have put storage spending plans on hold, as have the dormant entertainment and sports industries.

'Uncertain times' remain for data storage vendors

It's difficult to look ahead with clarity. Western Digital CEO David Goeckeler, who completed his first full quarter in the job, frequently used the words uncertain and uncertainty in his earnings call last week.

"If there's a common theme among our markets, it's uncertainty," he said. "We're operating in uncertain times."

Goeckeler said WDC's cloud business was strong and flash media sales increased, but brick-and-mortar customers spent much of the quarter in lockdown without spending. His assessment for the rest of the year: "uncertainty remains."

In the near term, we expect to remain challenged by the pandemic in the global economic contraction.
David GoeckelerCEO, Western Digital

Goeckeler said he is concerned about potential disruptions to WDC's supply chain and COVID-19's potential impact on employees' health at its manufacturing plants around the world.

WDC came through last quarter in decent shape, with $4.3 billion in revenue, up 18% from last year and in line with its forecast. Enterprise SSD revenue grew nearly 70% from the previous quarter and more than doubled from last year, and WDC's data center sales of $1.7 billion increased 32% year-over-year.

On the downside, capacity enterprise hard drive revenue dropped from the previous quarter. Revenue from client solutions -- HDD and SSD removable products -- fell 9% from last year to $687 million, and 16% from the previous quarter. WDC blamed those declines on lockdowns.

Breaking it down by media, WDC's flash revenue from SSDs grew 49% year-over-year to $2.2 billion, while HDD revenue fell 4% to $2.1 billion and total exabtye shipments decreased 2%.

WDC isn't the only vendor to experience a decline in HDD drives. Overall, HDD shipments declined to 59 million last quarter, down 13% from the previous quarter, according to market research firm Trendfocus. Market leader Seagate's shipments of 26.1 million dropped 11%, WDC slipped 5% to 23.1 million and Toshiba fell 32% to 10 million HDDs shipped after getting hit by supply problems. The three make up the entire enterprise HDD market.

Unlike WDC, Seagate has no enterprise flash business to fall back on. Its revenue of $2.52 billion last quarter increased 6.3% year-over-year but dropped 7% from the previous quarter, and it fell $100 million short of Wall Street expectations. Like Quantum, Seagate said the coronavirus pandemic hurt its video and imaging sales, and that failed to make up for increase in sales to cloud providers that saw more demand.

Seagate CEO Dave Mosley said midsize and small enterprises reduced IT spending and local governments delayed projects because of COVID-19.

"The near-term outlook is unclear," Mosely said during Seagate's earnings call in July.

Or, as his WDC rival would say, the immediate future is uncertain.

"In the near term, we expect to remain challenged by the pandemic in the global economic contraction," Goeckeler said.

WDC forecasted revenue of $3.7 billion to $3.9 billion this quarter, which would be down from $4 billion a year ago. WDC said it expects data center and client devices to decline.

'Steady and gradual recovery'

Even Quantum's Lerner, who said the worst is behind us, admitted these are still trying times for data storage vendors.

Jamie LernerJamie Lerner

"I wouldn't say everything's back to normal, but we're seeing a steady and gradual recovery," Lerner said in an interview. "We're coming off the lows."

Lerner said customers have taken projects off hold, particularly those using StorNext file storage in verticals such as government, healthcare, biometrics and medical research. He said those customers buy for disaster recovery and large data archives. But other industries -- notably, movie and TV studios and professional sports -- remain "muted" in their spending. Large entertainment companies in Los Angeles and New York have not yet resumed production. Sports teams are playing reduced schedules in a limited number of stadiums and without fans, eliminating most of the need for in-game and broadcast video.

Quantum's revenue last quarter of $73 million was more than expected but still down 31% from last year. Its forecast of around $83 million this quarter represented a big drop from $106 million in the same period of 2019.

Quantum lost $11 million last quarter, and Lerner said he would not rule out asking for more stimulus money from the U.S government if Quantum qualifies. Quantum received a $10 million loan during the U.S. government's first Paycheck Protection Program (PPP) in April, and Lerner said he is hoping for loan forgiveness even after receiving a request from Congress to return the money because Quantum is a public company. Lerner said he believes his response satisfied the House of Representatives' subcommittee in charge of PPP.

"We presented the Congressional subcommittee exactly what we did and went through, and, to my understanding, we met their full satisfaction," he said.

Lerner said Quantum is well funded, but if Congress passes another stimulus program, "we would review it to see if we qualify and if it would help our business. The goal is to stimulate business, and we want to stimulate business, stimulate the economy and protect jobs.

"I can say we have adhered 100% to the criteria for loan forgiveness, so as long as they adhere to the program, I would expect forgiveness. But things change every day."

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