Storage Seems Strong, But For How Long?

But there could be a drawback to this, especially because storage revenue in 2001 was down 18 percent worldwide and 40 percent in the United States. Robert Gray, an analyst at IDC, says there is a storage bubble in the making similar to the Internet and telecommunications bubble.

For now, venture-capital money still seems to be flowing. In December, at least three new storage companies secured a total of $56 million in a second round of funding. Those include Z-force Communications, Santa Clara, Calif.; Storigen Systems, Lowell, Mass.; and Maranti Networks, Milpitas, Calif. But Gray has been talking to venture capitalists who are surprised at the billions of dollars that have recently poured into storage start-ups. He forecasts many will have a tough time securing more money in the future.

"I'm sure some will close," Gray says. "[VCs are pulling back. There has been overinvesting. We will have a storage bubble. It just won't be visible because a majority [of start-ups are small. They will just quietly go away."