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Macro Trends in 2Q20 Storage Sales Financial Reports
Last week we saw the last of the biggest storage subsystem companies, report their quarterly sales. All the vendors with the exception of Pure Storage showed flat to declining sales according to
. What does this mean for the storage market going forward and what trends might we uncover.
: +0% Y/Y, +4% Q/Q
: -5% Y/Y, -10% Q/Q,
: -21% Y/Y for storage hardware
: -16% Y/Y, -22% Q/Q
: -1% Y/Y, +4% Q/Q
: +28% Y/Y and +21% Q/Q.
NetApp preannounced their report four weeks ago and their stock dropped 20% and sent a chill through the storage markets. On their earnings call they cited macro conditions like weakness in the global hardware markets and general uncertainty (along with a few others) that were impacting their business.
The other storage vendors who announced after NetApp’s announcement, tended to playdown the issue of macro conditions affecting their markets. Pure and Nutanix made it a point to state they were not seeing any macro conditions. However, Pure reduced their year-end outlook once again. On their conference call Dell said that the “Enterprise infrastructure market is softer than expected and will (continue) throughout the remainder of year” (paraphrased).
Here are some of the trends that I saw in these reports.
The first macro trend which comes as no surprise is the movement to public cloud. Most enterprises have moved some portion of their storage estate to the public cloud with more to follow as the hyperscale cloud vendors now dominate the infrastructure as a service market and increase their capabilities in SaaS and PaaS. Instead of trying to compete with the public cloud vendors, you see storage vendors trying to work with the cloud and leverage the hybrid and multi-cloud requirements of their customers.
The second macro trend is the uncertainties around the ongoing trade tensions, which impact market stability and customer confidence. This was cited by HPE, while Dell said they were “innovating and integrating across the Dell Technologies portfolio, from the edge to the core to the cloud, with a diverse business designed to succeed in any macro environment.” Then Dell said their core orders would have been up if China was excluded.” Others said that customers were taking longer to make decisions which may be an indication of lack of confidence. Hopefully this will be a short term trend. However, the long term effects may be a shift in volumes to emerging Chinese storage vendors.
The third macro trend is the movement to deferred revenue models. Customer are moving to pay per use, subscription, and licensing models as a way to reduce capital spend and follow the cloud as a service model. This means that the storage vendors will have to delay revenue recognition and struggle with cash flow challenges during the transition to a deferred revenue model. That transition will impact revenues, particularly if you are a storage only company. Nutanix cited compression in revenues from the transition to subscription-based licensing. HPE indicated that the entire HPE portfolio will be available aaS by 2022.
The fourth macro trend is the move to DataOps. Customers are focused less on the cost of storing their data, and more on monetizing their data. That means that storage vendors must focus on helping their customer monetize their data by activating and enriching their data as well as storing their data. That means eliminating data silos and curating the data such that the data is more useful for users engaging in data discovery and analysis. DataOps also involves the management of data so that its value is maintained over time and remains available for reuse and repurposing. Storage vendors must be focused more on helping their customers with DataOps than selling them storage. Cloud vendors are also focusing on DataOps through acquisitions as a way to shortcut the process.
major trend is the trend toward real time results where latency becomes a key issue and low latency is a competitive advantage. This is where the remote connectivity of the cloud is a disadvantage. Cloud attached storage devices have a latency between 10 to 20 milliseconds while latencies for SSDs are in the microsecond range. That is why the flash devices for most of the storage vendors, except NetApp, did well. The revenues for flash arrays will continue to be positive. Cloud vendors are trying to close the latency gap with edge data centers that are placed closer to major customer data centers, but latencies will still be in the millisecond range.
These macro trends were reflected in the quarterly financial reports. You saw a lot of references to cloud data services and partnerships with the major cloud vendors. While there were oblique references to trade tensions, many said that customers were taking longer to make decisions. As a service is the payment model going forward. All the vendors are investing in DataOps tools and services to help their customers harvest the value of their data. While, not talked about yet, the next major focus for competitive advantage will be around latencies. NVMe will have a major impact but will expose other choke points which will need to be fixed before its full potential can be realized. See my previous post: NVMe
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