Storage Vendors End 2005 on a High Note

Thursday Jan 12th 2006 by Paul Shread
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The fourth quarter was a strong one for storage vendors, according to analysts, and demand appears solid for 2006 too.

The storage industry ended 2005 on a strong note, according to a survey of resellers by Robert W. Baird & Co. analysts.

The financial research firm surveyed 85 resellers representing $18 billion in annual sales, and found that 40% were above plan, "one of the more positive quarters we've seen" in the last 18 months, said the report authored by Daniel Renouard, Frank Timons and Joel Inman.

Resellers are also optimistic about the first quarter and 2006, the report said, with 90% of respondents forecasting greater than 5% growth this year. The report echoes the findings of a Baird survey of enterprise spending plans released last month.

The survey was most positive on fourth-quarter performance and 2006 outlook for EMC, IBM, Network Appliance and Cisco, and negative for Sun/StorageTek and Dell. The international outlook is somewhat less optimistic than the U.S., the analysts said.

"After a significantly weaker performance in Q3, EMC appears much healthier, beating number two IBM by a wide margin," the analysts said. Indeed, EMC pre-announced better than expected results last week, along with plans to eliminate about 1,000 positions.

HP, meanwhile, "is slowly gaining ground, and resellers increasingly expect gradually improving channel relations to result in incremental HP sales."

Sun/STK and Symantec/Veritas were considered the weakest in the fourth quarter, but the report said the companies' recent mergers could result in improved channel relations.

NetApp has the most momentum of any storage vendor, the analysts said. "We view NetApp's score as even more impressive considering the vendor's relatively under-distributed history," they wrote. The Baird analysts also noted that NetApp was stronger among larger resellers, "which we believe indicates the vendor is having success in penetrating larger enterprise accounts."

NetApp also gained ground because of its OEM relationship with IBM, with half of the respondents "expecting some kind of ramp" from the deal.

"We believe the relationship will prove substantially beneficial to NetApp, although given IBM's massive size, it could and is taking time to ramp up," the report said. The relationship has also fueled rumors on Wall Street that IBM might try to acquire NetApp.

Feedback on iSCSI is improving, the analysts said, with 40% advising that demand is ramping moderately, "but most customers just kicking the tires." A larger percentage of small resellers noted strong demand for iSCSI, which the analysts attributed to demand from small and mid-sized businesses (SMBs).

Overall pricing remains aggressive, "but not desperate," the analysts said. Pricing deteriorated modestly in the server market, and improved slightly in the storage market.

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