Hardware Vendors Face a Storm of Uncertainty

For the first half of 2008, we kept hearing rumors of recession, but quarterly sales figures constantly belied that threat. Then in the final three months of 2008 those fears came true, and then some. Month after month, IT spending projections were revised down, from double digits to single digits to flatline.

The timing is most unfortunate for the hardware makers, as they are in the process of introducing some fantastic new technologies: Core i7, “Shanghai” Opteron, the fastest GPUs ever, large capacity solid state drives (SSD), Blu-ray drives, energy efficient hardware.

The challenge for the Silicon Valley is to sell new products when the main instinct at IT shops is to hold fast, cease all new deployments and just maintain what they currently have. Therefore, all predictions for this year have to be viewed through the prism of the economy.

1: As they say in the Royal Navy, hold fast!

With IT budgets shrinking, some segments are being given priority over others. For instance, IT training is one of the first to be hit, but security spending isn’t being touched. For hardware companies, that means a tougher sell as firms make do with what they have and keep their laptops, desktops and servers a little longer than they may have planned.

On the bright side, travel is also being cut severely, so no more intolerable air travel experiences.

What this means is that at some point, there will be a pop in sales. The question is when. The lack of credit is a major impediment, and the banks are not helping. Despite being given the massive government bailout, banks are not using the money to extend credit. With no credit, people aren’t in a buying mood.

This will also affect the application development side of the house. Firms won’t be engaging in ambitious new projects. They won’t be too quick to deploy those enterprise Java apps so quickly now if that means they have to hire people, get them training, etc. Existing apps will be maintained and new projects delayed.

The one possible winner in all this: on-demand software firms like Salesforce.com and NetSuite. Companies may decide that it’s safer, cheaper, faster and easier to use their on-demand products rather than an expensive SAP or PeopleSoft deployment.

2: Heads in the clouds

Cloud computing” was the buzzword of the year for 2008, and it will likely continue into 2009 for the reason listed above, the economy. Firms ranging from Amazon (don’t they sell books?) to Microsoft are gearing up to offer cloud services. Microsoft Azure will offer Windows server services, while Amazon’s EC2 service will have Server 2003 functions.

Microsoft will be launching its own cloud infrastructure in 2009, Google is expected to continue expanding its services, especially now that it has its own custom GUI in the form of the Chrome browser, and RackSpace will likely get more aggressive in 2009 thanks to its acquisitions of SliceHost and Jungle Disk.

Expect venture capitalists to start looking to invest in this category now that it’s breaking out as a clear growth opportunity. In 2007-08, firms stopped going public due to the excessive burden of Sarbanes-Oxley, so the strategy was get funding, build a product, and get bought by Google. In 2009, the final step will be get bought by Google, Microsoft, Amazon, Salesforce, or someone else.

Hardware vendors will try to latch onto this mania with branded cloud computing products, but people have already seen through that for what it is. The difference between a database server and a cloud server? A sticker.

Next Page: Mass storage gets more massive

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3: Mass storage gets more massive

The first hard drive I ever owned was 50 megabytes in capacity. Today, about the only thing I download smaller than that is a Word doc or Powerpoint file. With people generating so much digital content, mostly thanks to music and DVD ripping and digital cameras and camcorders, terabyte hard drives are not only common, they are getting cheap.

Prices on Pricewatch.com reflect a plunge in large capacity drives, with 1TB drives now very close to under $100. Many computers come with two drives in them, for 2TB of total capacity. Specialty Windows Home Server computers can store up to 5TB of data.

Also taking the plunge are SSD drives. When 32GB and 64GB SSD drives first hit, they commanded a steep $600 or more. Now they can be had for under $100. The plunge in price will make them much more palatable to laptop customers, who will find their low power draw and cool running to be worth the now lower premium price.

After conquering the mobile market, SSD could move to enterprise storage next as an alternative to the high speed drives used in a RAID setting. Unlike a drive, which has to spin up, flash has no latency, no delay in reading and writing. But SSD/flash is still unproven in the enterprise, so adoption will be slow as companies take some time to field test them.

In addition to internal storage, we’ve seen a burst in the advent of external storage drives, with 320GB to 500GB drives in a case that plugs into the USB port, thus sparing people the headache of opening their computer to add storage. Also, we’re seeing a growth in off-set storage and Internet backup, from Amazon S3, Carbonite and Box.net. Expect more cloud storage efforts in the coming year.

4: Here comes 64-bit

With memory at radically cheaper levels, vendors have been beefing up standard memory levels. And the benefits are a lot more obvious than say, processors with more cores. Is a dual-core 2.8GHz chip, for example, faster than a quad-core 2.4GHz chip?

But it’s easy to differentiate between 2GB, 4GB and 8GB of memory. An increasing number of vendors, led by HP, are releasing 8GB machines. However, 32-bit Windows can only address 4GB of memory. The solution? System makers are starting to opt for 64-bit Windows Vista. Microsoft estimates that the population of 64-bit users visiting Windows Update in October of this year was almost 20 percent. It was single digit at the beginning of the year.

Microsoft is on record as saying that Windows 7, its successor to the maligned Vista, will come in 32-bit and 64-bit flavors, so it’s not abandoning 32-bit computers yet, even though 32-bit processors have been off the primary market since 2006 or so. Most of the third-party hardware vendors have caught up and make both 32- and 64-bit drivers. Expect more pre-built systems to come with 64-bit Windows, Vista and 7, and loaded with 8GB of memory.

Microsoft emphasized 64-bit support at all of its recent developer shows and wants more vendor support, but it should look at the software section, too. A notably absent 64-bit piece of software: Adobe’s Flash player. Even if Microsoft and Adobe are not likely to be exchanging Christmas cards, they need to work together on this.

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