Revenue from sales of storage systems is plummeting thanks to the economic downturn, even as the total amount of storage capacity sold continues to boom.
That's the key message from analyst firm IDC, which Friday released its Worldwide Quarterly Disk Storage Systems Tracker report for the first quarter of 2009.
Disk storage systems revenue totaled $5.6 billion in the first quarter of 2009, down 18.2 percent compared to the same quarter of 2008, according to IDC.
This drop happened despite an increase in the amount of storage capacity sold during the quarter of 14.8 percent over last year to reach 2,146 petabytes, IDC said.
The huge drop in revenue despite the fast rise in total capacity sold comes as a result of a lot of discounting going on in the storage market, said Elizabeth Conner, research analyst at IDC.
"The economy is not good," Conner said. "But people still need storage. So instead of midrange storage products, customers are stepping down to smaller, entry-level products. Or instead of data center-class storage, customers are stepping down to the midrange."
Vendors are also cutting prices, probably more aggressively than in the past, Conner said.
IDC tracks storage sales according to price bands based on the average configuration, and is seeing a lot of business move from the $500,000-plus price band into the $300,000 to $500,000 range.
"We saw growth in the $300,000 to $500,000 band which we didn't expect," she said. "Vendors are still selling those higher-end systems, but taking a big price cut to get them sold."
Conner also said that vendors are setting themselves up for trouble later if they try to raise prices as the economy recovers.
"I definitely feel vendors will see some resistance if they try to go back later and sell the storage at $500,000 instead of $300,000 without major improvements in the technology," she said.
The fastest-growing part of the storage business is the under-$50,000 range, Conner said. Sales of that type of storage, typically seen in small offices, home businesses and remote offices, is growing not only because those types of customers are seeing growth, but because midrange and enterprise customers are also buying it. "The features are more and more the same as higher-priced storage," she said.
As a result, large tier-one storage vendors are seeing more of their sales move away from their higher-priced products and towards their lesser-priced product lines, Conner said. And smaller vendors are also seeing a good uptick in sales.
"Some of the smaller companies are focusing more on such features as iSCSI or energy efficiency, which means customers might be better able to get exactly the storage they need at a lower cost from such vendors," she said.
IDC breaks storage revenue into two broad classes. The first is total disk storage systems revenue, which encompasses all storage sold including storage internal to servers. The second is total external disk storage systems revenue, which includes storage arrays and other appliances.
Both classes only count the factory revenue, but not an OEM's sales of other vendors' products. For instance, a Dell Clariion manufactured by EMC but sold by Dell would be counted in EMC's total.
HP was the leading vendor, with storage revenue of $975 million, down 25.8 percent compared to last year.
It was followed by EMC at No. 2 with revenue of $871 million, down 16.0 percent for the quarter; IBM at $811 million, down 21.7 percent; Dell at $660 million, down 17.2 percent; Hitachi at $410 million, down 8.5 percent; and NetApp at $373 million, down 13.5 percent.
Total worldwide external disk storage systems revenue was $4.2 billion during the first quarter of 2009, down 13.6 percent compared to the same period of 2008.
EMC retained its traditional lead with revenue of $871 million for the first quarter of 2009, down 16.0 percent compared to the same quarter of 2008.
It was followed by HP at No. 2 with storage revenue of $482 million, down 19.6 percent; IBM at $476 million, down 15.0 percent; Dell at $410 million, down 8.8 percent; Hitachi at $394 million, down 9.1 percent; and NetApp at $373 million, down 13.5 percent.