Storage Earnings Bright Spot in Gray Industry
- By Scott Bekker
of the computer industry fesses up to grim fourth quarters, many storage
vendors are ready to share the good news. The desktop PC slowdown did little to
affect the booming enterprise storage industry, allowing vendors to meet or
beat earnings estimates.
profile companies bucked the downturn in the computer industry, reporting
tremendous fourth quarter growth. Veritas
Software Corp., which makes storage management and disaster recover
software, said revenue grew 64 percent year-over-year from $226.2 million in
1999 to $370.1 million in 2000.
EMC Corp., a provider of Fibre Channel storage
systems, software, and services, reported 50 percent year-over-year growth in
revenue, and 49 percent year-over-year growth in net income. Sales of SAN
equipment constituted a large chunk of the revenue growth, expanding 250% from
fourth quarter 1999. Software revenue grew 72 percent year-over-year.
most high tech companies saw sales slow or drop, many storage companies showed
huge gains in revenue. Tony Prigmore, an analyst with the Enterprise Storage
Group, says storage is so essential to enterprise operations, sales will remain
stable or grow for some time. “We don’t believe storage is a discretionary
capital expenditure,” he says.
lots of ways information propagates that can’t be shut down,” Prigmore says.
Because enterprises need email and databases to compete, he says, they have no
choice but to sink money into more storage.
“It’s not something most companies can shut the tap off on,” he says.
good all around for Host Bus Adapter vendors. QLogic
Corp., which leads the market in shipments, reported a 73 percent earnings
growth, up $40.8 million from fourth quarter 1999. Emulex Corp.’s fourth quarter revenue more
than doubled, jumping from $33.6 million in 1999 to $71.1 million in 2000.
Emulex said it was planning a 2 for 1 stock split. JNI
Corp., which specializes in high performance HBAs, grew 113 percent
Channel switch vendor Brocade Communications
System Inc. experienced explosive revenue growth. Brocade took in $27.2
million in the fourth quarter, $23.7 million more than the previous year. Its diluted
earnings grew 2300 percent year-over-year from $0.02 in 1999 to $0.56 in 2000.
Prigmore says the market for Brocade products is in its infancy, giving it the
potential for even larger gains in the future. He says that Brocade could
easily branch out in other direction, “There’s no reason Brocade can’t be
really big in networking,” he says.
issues still plagued vendors in the storage arena. Gadzoox Corp. reported flat revenue growth
from the third quarter 2000, but reduced operating costs, reducing losses from
$.084 a share in the third quarter to $0.41 a share in the fourth quarter.
Despite huge revenue growth, Veritas was still losing money. However, its
losses dropped from $0.44 per share to $0.31 per share.
the desktop hard drive business painted a drearier picture. Quantum Corp. reported growth for its tape
and NAS divisions, but lost money in its hard drive business, which it is
selling to Maxtor Corp. While Quantum’s NAS
division reported record 41 percent growth, its tape business experienced slow
sales. Quantum’s hard drive business lost $3.3 million in the fourth quarter.
Maxtor, which is buying the division, reported flat growth.
Quantum and Maxtor’s woes reflect the way that enterprises use and
buy storage. “Everything at the desktop is discretionary,” Prigmore says. Companies
with weak revenue can postpone buying end user machines, unlike storage for
mission critical applications. He also attributes Gateway and other OEMs’
problems to this phenomenon.
solid storage business, however, should see stable growth. Prigmore believes
companies such as Compaq would have been hit harder if it weren’t for it
enterprise storage business. “Compaq has a really big storage business.”
analysts on Wall Street are cynical about storage companies’ ability to keep up
growth, Prigmore believes that storage has plenty of room to grow. “Goldman
[Sachs Group Inc.] came out and hit NetApp – we think that’s just crazy,” he
says. – Christopher McConnell
Scott Bekker is editor in chief of Redmond Channel Partner magazine.