Storage Seems Strong, But For How Long?

In March of last year, International Data Corp. tracked at least 50 new storage businesses. But in the past 18months, that number has risen to 150,an unprecedented level of entrepreneurship in storage.

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."