Gartner: Regulations, SMBs to Drive Storage

Record retention regulations and the desire for low-cost infrastructure from
small businesses will fuel consolidation in the storage sector through 2006,
according to a third-quarter market update from Gartner Dataquest.

Moreover, despite an improvement in capital spending on IT, executives are
exercising caution by limiting storage infrastructure purchases to projects
that decrease operational costs and align IT with business requirements and
government mandates.

Specifically, report author Roger Cox said the equipment needs of small- to
medium-sized businesses will force vendors to make more disk storage systems
that support low-cost Fibre Channel switches,
host-bus adapters and iSCSI .

The notion that SMBs are looking to storage area networks
has already happened in some areas. EMC, known for years as a
strict adherent to high-end gear, began selling, with Dell, its AX100 storage server for less than $10,000. IBM has plans to
offer a low-cost storage server based on iSCSI, as well.

Cox expects more vendors to announce disk storage systems that
support native iSCSI, further broadening cost-effective SAN deployments and
pushing Fibre Channel SAN to the back burner.

To capitalize on SMB growth, Cox said vendors must strengthen reseller
channel support programs to reach the SMB market and fasten strategic
alliances to pad their information life cycle management (ILM) strategies,
which call for stored files to be managed from their creation until their

The proliferation of ILM strategies from EMC , IBM , Veritas, Hitachi Data Systems and HP
can be directly attributed to the explosion in data growth
and the slew of record retention rules from the government, such as
Sarbanes-Oxley, SEC 17a-4 and HIPAA.

These regulations are causing companies to shell out cash for products that
make stored file retrieval fast, convenient and cost-effective, all
hallmarks of ILM.

While SMB remains strong, Cox said aggressive vendor pricing, financing and
infrastructure bundling will moderate the growth of redundant array of
inexpensive disks RAID-based storage revenue through 2006.

The analyst also had some prognostications for the sector.

Noting that, though external controller-based disk storage revenue fell only
$13 million short of the June forecast for the first six months of 2004,
Gartner Dataquest is concerned that the second half of 2004 will not be as
robust as previously forecast.

Referring to HP’s recent enterprise storage shortfalls,
Cox said the company’s ability to recover in the third calendar quarter
of 2004 remains in doubt.

He further noted the “impact of expected new product announcements by
HDS and IBM in September is projected to push buying decisions out
one or two quarters.”

Cox is referring to the third coming of HDS’ Lightning, called TagmaStore,
which is expected
to be unveiled Sept. 7 in New York City. There have also been rumblings that
IBM will update its Shark enterprise storage server.

Gartner also updated its estimates for RAID-based disk storage
market share through the first half of 2004.
External controller storage, the physical separation of the disk storage
asset from the server, makes up most of the RAID disk storage segment, while
hosted RAID comprises the other.

Cox said EMC commands a 23 percent share of the external controller-based
disk storage revenue segment. HP and IBM follow with 16.5 and 11.9 percent
shares, respectively.

From Q1 to Q2 in 2004, IBM, Sun and Dell had the strongest sequential
growth, up 27 percent, 22 percent and 14 percent, respectively. EMC and HP earned modest growth.

Conversely, HDS experienced a huge dip in market share, falling 35 percent to 6.9 percent from 10.8. That figure heightens the interest around the forthcoming TagmaStore news.

“Storage vendors are aggressively pursuing storage infrastructure
opportunities, meaning that the external controller-based disk storage
market is, in reality, a buyer’s market,” Cox said in his report. “IT
executives have numerous alternatives from which to select the storage
solution that best fits their needs and budgets.”

These factors will restrict external controller-based disk storage revenue
growth to single-digit percentages through 2006.

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