What The Numbers Say About EMC

How bad is the news? Well, worldwide disk storage systems factory revenue (which excludes sales generated through channel sales) was $4.7 billion in the third quarter of 2002, down 3 percentage points from the second quarter of 2002. The total external storage market declined by 5 percentage points, down to $3.2 billion in the third quarter, while network-attached storage (NAS) was down by 10 percent and open storage-area networks (SANs) was down by 6 percent.

IDC gathered this information on sales generated from disk subsystems, so its report confirms what many experts and vendor executives have been saying in recent months: The storage hardware market is no longer a secure cash-cow bet.

It's important to note that IDC is using a new tracking model to document revenue growth in storage,one that has only been used in the second and third quarters of 2002. In the past, IDC collected revenue numbers on an annual basis. But market conditions are changing so fast that the research firm now is tracking the figures each quarter, IDC analyst Eric Sheppard told me.

That puts the likes of EMC, Hewlett-Packard and Hitachi under a bigger microscope. And the numbers show that 2002 was not particularly kind to the once high-flying EMC.

For instance, the Hopkinton, Mass.-based company experienced a 21 percent drop in revenue in the third quarter compared with the second quarter. Moreover, it lost market share while HP's and IBM's increased. And while EMC continues to hold the leadership position in the total network storage market, the company was nudged into the No. 2 position in the open SAN and NAS market by HP and Network Appliance, respectively.

At the same time, Hitachi had a very good storage year (see "Vendor Lineup," below). "They have announced new products that are much more scalable than in the past," Sheppard says. For its part, IBM also experienced a 7 percent sequential revenue growth between Q2 and Q3.

No doubt, those stats are useful to view how vendors are doing in the market. But it's the story behind the numbers that I think is of particular interest to solution providers: Sheppard says the companies that were able to offer customers a complete solution fared much better than those that only offered point products. Moreover, just like the server space, the high-end storage market is contracting, meaning there are fewer sales to be made in a space that has more product parity than ever before.

EMC is facing stiffer competition. Hitachi, for example, signed on with Sun Microsystems as a VAR pal, and now Sun is able to offer a robust storage subsystem that it previously lacked in its product portfolio. "It's a level playing field, suddenly," Sheppard says. That means stronger price competition.

Sheppard also said he found it interesting that customers are more attracted to modular, midrange subsystems. That is where most of the revenue is being generated. Customers are finding that new midrange storage products now have the kind of functionality that previously was only found in enterprise systems. "The midrange market is really maturing," he says.