Storage is a massive, complex and, at times, widely fluctuatingws and price cuts begin to bite margins. Vendors and distributors aren't admitting a problem, but they have reason to worry. market. According to one estimate by IDC, in the year 2000, storage system spending will top £16 billion worldwide.
In 2003, IDC predicts there will be 10,000 petabytes (1 petabyte = 1,000 terabytes; 1 terabyte = 1,000 megabytes) of digital information in the world - three times the amount in 1998. And it all requries a place to reside.
Last autumn, after a glut of disk drives had been all but flushed from the channel, it looked as though the market would settle down and supply would be closer to matching demand. But that's not what happened. Slow PC sales in the first quarter of this year quelled OEM demand and the slow shift towards branded PCs has also had an effect. Prices in the volume disk drive market may have fallen dramatically, but according to the analysts, there is still plenty of stock in the channel.
As with any product in the sector, those after the best margins have headed straight for the high end of the market, which is buzzing with talk about network-attached storage, storage area networks (Sans) and storage management. Systems vendors are desperate to hang onto their storage business, which can account for up to two-thirds of the total value of a server sale. Compaq is fighting hard for business with IBM, Sun and independent vendor EMC.
In the tape, optical and removable sectors, it's pretty much business as usual. Linear tape-open technology is only just starting to have some impact on the high-end promimnence of digital linear tape (DLT), while DAT dominates the lower and mid-ranges. CD-RW is flying, putting DVD in the shade and outpacing ZIP and LS120 sales combined, by two to one.
But it's in the volume disk drive market that alarm bells are ringing.
Volume growth has slowed down considerably. In the fourth, third, second and first quarters of 1998, and the fourth quarter of 1997, the market grew on average by 28 per cent compared with the same quarter a year ago.
But in the first quarter of 1999, this growth dropped from 28 per cent to 15 per cent.
Because of the slump, vendors have had to impose immediate price cuts.
Average drive prices were culled from about £81 in the fourth quarter of 1998 to £76 in the first three months of this year, and the decline has accelerated in the current three-month period. Bob Peyton, director of European storage research at IDC, says: 'Prices have gone down in the past two months, faster than they did in the past year.'
Vendors have been forced to push prices down to clear stocks as demand from OEM buyers failed to meet expectations, he says, adding: 'This is serious news. As always, there is sufficient supply and Seagate has been leading the prices in the past couple of months. In April and May, we saw drops of 18 per cent and 21 per cent on average, taken over a three-month rolling period. That compares with the long-term average of about 11 per cent.'
For the channel, this is indeed serious news. Although vendors deny all knowledge of a glut in the channel and distributors feign prosperity, privately they will admit that there is a real problem and prices and margins are depressed. Prices have dropped so far that there is not much point in being in the low-end volume disk drive market unless you treat it as a volume commodity. For most of the channel, the low end is dying.
Capacities continue to climb, however, even though the price of a disk drive is dropping like a stone. The average capacity coming out of the factories for first-quarter OEM shipments was 6.1Gb according to IDC, compared with 5.4Gb in the fourth quarter of 1998.
This has not yet made an impact on the performance of the SCSI market, which maintains steady growth and only moderate price declines, says Peyton.
Capacity on SCSI drives is also growing, keeping it out of the IDE/ATA volume market's reach. But that may change later in the year when some of the vendors manage to get 10Gb onto single platters - as at least one claims it will.
Mike Nelson, technical director at Fujitsu, says it will almost certainly have 10Gb single platter drives on the market by the first quarter of next year, and he thinks it will have a significant impact on the market. 'There will be a cross-over between the desktop and SCSI because the ATA drives are starting to deliver plenty of performance. We will also see a rationalisation of capacity points. They are a bit haphazard at the moment and the transition to 10Gb single platter products will create a split. Some vendors will go to 10Gb, 20Gb, 30Gb or 40Gb and others that don't have the technology will try to compete with 8Gb, 16Gb and other capacities.
According to John Fox, disk drive products marketing manager at IBM, we could have 30Gb on one platter inside three years. He also thinks the development of very small form factor 'microdrives' - using the compact flash type 2 interface - could also have an impact by then. The technology has already produced a 340Mb drive which is small enough to slot inside a handheld device.
But in the shorter term, higher areal densities and technology advances will enable some vendors to offer inexpensive disk drives with neat, round number capacity points. These will be much more attractive to the OEM market and system builders than the odd numbers and fractions we have lived with up until now. The technology that will enable this is GMR - giant magneto resistive head. IBM and Fujitsu are likely to be the first to hit the market with this type of product.
This is even more evidence that the bottom end of the market will be no place for faint-hearted vendors that can't hack it in a volume market.
Nor will it be fun for distributors that rely heavily on playing with the dynamics of supply and demand.
The fall in the desktop market has also had an effect on the mobile business.
In the first quarter of 1999, prices were down significantly. This was a surprise, says Peyton, because the main vendors in that sector - Toshiba and IBM - are 'reasonably well behaved' most of the time.
Peyton is not sure whether this will continue, but prices for disk drives are unlikely to recover from the average £100, with desktop prices now approaching £60. But mobile drives have always been more difficult to manufacture, so some premium is bound to remain.
In the removable market, the big story is CD-RW, which continues to grow rapidly every quarter. 'There are more CD-RW shipments than ZIP and LS120 combined - it is the volume market in removables,' says Peyton.
In the first quarter of 1999, 1.3 million CD-RW units were shipped in the EMEA region - a massive 166 per cent rise on last year. Peyton expects seven million for the entire calendar year, up from about three million in 1998. Prices are dropping to about £125 per unit from the vendors and with about a dozen players in this sector, further dramatic falls in average prices are certain as the volume rises. Peyton says: 'This is just about the only place anyone is making money right now, but in six months' time, things will start to get ugly.'
It is CD-RW that is preventing DVD from making an impact on the Ram sector.
Despite it being a cheaper Rom drive, at the current price point users just cannot see a reason for DVD. Peyton adds: 'Remember, this is an after-market product and the users ask themselves whether they should opt for DVD-Rom, in which case what do they watch and what do they get, or do they buy a CD-RW?'
Even in the Rom sector of the market, DVD is hardly off the ground, eating up only about 10 per cent of the market. A three-to-one difference in the price makes the DVD purchase hard to justify, especially with CDRom down to about £20 a unit. Even the highest speed drives command only £3 to £4 extra, compared with a DVD-Rom drive at about £60.
The values of optical technology markets in EMEA are now startlingly different. DVD-Rom was worth only £40 million in the first quarter of this year, yet the CDRom market (at least 90 per cent of all Rom drive sales) was worth only £100 million. CD-RW out-did them both with £153 million.
While all this is happening, the tape market is moving very slowly indeed.
DLT is holding its own with the mid-range library systems, staying in the frame for the server market. The advances in capacity to 100Gb will help DLT to resist the attack from LTO - the Seagate, IBM and HP technology.
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