When a mature market declines, alarms ring and bells are tolled, but more often than not it is an indicator of evolution and optimisation rather than the death of a category. It is fair to state that the enterprise storage market has had better days for the channel recently; with a -26 per cent year-on-year decline in revenues, and a -30 per cent year-on-year fall in units, the storage system market in Q4-16 compares poorly with Q4-15 in Context's European Distribution data.
The same decline has also been noted for servers from the big players, and it seems to not be a phenomenon unique to distribution as a route to market. Some commentators have suggested that enterprise vendors such as Dell and HPE are increasingly selling direct, and although this could be true, it does not explain why manufacturers are also reporting volatile trading overall in their shipments.
When we look at geopolitical events, the uncertainty caused by the Brexit factor (and now a snap general election) is certainly playing its part, dragging down sales in Europe's second-largest economy, as businesses prove reluctant to invest in infrastructure until they have a clearer view of the future situation in the UK. Brexit aside, the macroeconomic effect from cloud computing and outsourcing continues to depress traditional storage system sales, with both SMBs and larger corporate entities increasingly fulfilling their IT requirements in the cloud - drawn in by the promise of reduced costs and simplified in-house technical infrastructure.
The Amazon Web Services (AWS) success story is an indication of the current state of affairs. Today, AWS represents some 12 per cent of total Amazon revenues but is planned to account for at least 30 per cent of revenues by 2020. Tech and industry journalists have been suggesting that Amazon's stock is currently over-valued and its figures based on over-optimistic future revenues, but these may very well come to fruition, with revenue growth of 50 per cent between 2015 and 2016.
Likewise, Microsoft has been successful in trading off existing customer relationships to drive the uptake of Azure. When we dig deeper into the market data, we find a more complex story. While storage systems overall experienced a year-on-year decline in revenues in Q4-16, storage system components and upgrades such as HDDs and SSDs saw much smaller revenue drops.
These figures suggest that while companies are buying fewer complete storage systems, they are choosing to invest in newer technologies and higher capacity components.Indeed, despite a year-on-year dip in sales of HDD/SSD components and upgrades for storage system units, the overall sum total storage system capacity bought in Q4 2016 has increased by 10 per cent year on year. The ascendancy of SSD over HDD, and the strong demand for higher-capacity SSDs is highlighted by the fact that total SSD storage capacity increased by a full 100 per cent, with a 30 per cent growth in units.
Although politics and the broader economic situation will have a direct impact on all markets, the enterprise category is changing, with evolving patterns of consumption, as cloud-hosting organisations optimise their existing in-house infrastructure, choosing newer technologies in order to fulfil their client needs, and SMBs/larger corporates invest in cloud-based solutions to reduce their IT infrastructure costs.
This means there is still plenty of life and opportunity in the morphing enterprise market; and as Charles Darwin is reported to have once said: "It is not the strongest of the species that survives, but rather, that which is most adaptable to change."
Gurvan Meyer is a senior research analyst at Context
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