Investment bank Morgan Stanley maintains one of best barometers of IT industry trends available. To do so, it taps into the plans of an elite group of candid CIOs and maps their thinking onto its predictions for market movements.

Those CIO spending priorities for 2006 confirmed once and for all a simple fact: that storage has become strategic.

Of the areas where CIOs said they would channel their budgets over the year, storage occupied three of the top ten targets, with storage area networks and storage software only beaten to the highest slots by that perennial agenda topper, security. In terms of priorities, the predictions put storage above the likes of VoIP infrastructure, business intelligence, portal software and any number of other key technologies for spending priority.

What has inspired that elevation of a technology set that historically was thought of as peripheral – literally? For one, senior management at most businesses have come to accept – even embrace – what they have been told by gurus and consultants for years: that their businesses are information-driven. Without the ability to store and access information, they are not just blind to developments within their own organisations but are going to struggle to get a perspective on the quality of service provided by their partners, the performance of their competition, the satisfaction levels of their customers. That has created a clear perception that they are now dependent on an underlying ability to store and manage the organisation’s data.

The quantity of data being stored is now so vast, and the requirement for enterprise-access to it so broad, that businesses have come to accept that storage is now a fundamental part of the cost structure of doing business.

Senior decision-makers’ minds have also been concentrated by the ever-expanding regulatory environment. Legal and industry-set requirements to ensure that data is stored securely and appropriately, and can be made available to those that vet such regulations, has established a much higher priority for the management of data.

Complexity reigns

The problem is that all these developments have created layers of complexity. In building storage area networks that make storing and retrieving data much more flexible and efficient, in ensuring the performance of access to vital data, in establishing back-up regimes that try to guarantee reliable recovery from an outage, IT management has to draw on supplier technologies like never before: for 4Gbps data switching, for content-addressable storage, for 1 terabyte disk drives, for disk-to-disk-to-tape back-up, for virtualisation, for storage resource management – the list goes on.

And that has demanded a deeper understanding of the key storage suppliers, their technologies and the role they play in building and maintaining the storage infrastructure. Moreover, customers need to know who the winners and losers are today and who looks like thriving in the future.

Unlike other similarly mature parts of the technology industry, the storage sector has not gone through any kind of large scale consolidation – a situation that has its own complications.

For one, the challenge in putting together a storage environment involves pulling together technologies and expertise from a wide range of vendors – disk system providers, network storage switch and host bus adapter makers, software management players, back-up specialists, tape drive manufacturers, archiving technology firms, storage systems implementers, managed storage services companies and other service providers. And the challenge is to get all the key parts to work together.

As Brad Nisbet, a storage analyst at industry watcher IDC, says: “Data centre complexity has gone through the roof due to the explosion of data, infrastructure consolidation, mounting security concerns, as well as compliance and regulatory needs.”

The Information Age Storage Top 20 shows just how diverse that group of key suppliers still is – and how critical it is to pick the right combination of suppliers. Especially, as analysts point out, spending on storage is only heading in one direction.

While the cost of storing a terabyte (TB) of data is still falling (by around 30% a year), the capacity that customers are buying is growing at a considerably faster rate.

Investment group AG Edwards estimates that overall terabytes shipped in 2005 grew by 68%. That translated into a market revenue growth of between 10% and 12%, although some vendors are easily outpacing their rivals: Dell’s disk storage business grew by more than 35% last year; Network Appliance saw a 26% growth; IBM’s storage sales were up 19%.

Demand drivers

And there are some key trends fuelling those growth rates. One involves the way storage is packaged. Today, IDC estimates that more than 35% of all storage capacity shipped is still internal – bundled in the same box as the server. But with the growth in adoption of blade servers, that will drop off.

Blade servers, by their very nature, do not ship with any internal storage capacity, and with IDC predicting that, over the next three years, blades will account for 25% of all servers shipped, more and more of the storage shipped will be external. Moreover, blade servers are much more likely to be used alongside a storage area network, leading AG Edwards analyst, Aaron Rakers, to conclude: “Blade servers equals high networked storage attachment.”

Another reason for escalating storage capacity is the availability of low-cost SATA disks in sophisticated storage architecture. These are the kind of disks that might be found in a PC, and although they are less reliable, they are a fraction of the price of disks made especially for many high-end and mid-sized storage systems. That has encouraged the use of disk storage for jobs like “disk-to-disk back-up and the retention of fixed content data such as cheque images and X-rays”, says Rakers – tasks previously thought of as only suitable for tape storage.

As the Storage Top 20 table shows, suppliers still fall into clearly defined groups. Outside of the ‘Big Five‘, which supply a broad range of storage infrastructure, are clusters of specialists – in fibre channel host bus adapters, back-up and other areas, either supplying their products directly to customers or – with greater frequency – through the larger vendors that customers look to deal with the complexity.

Those specialists have surprised many observers by their longevity: but their expertise has given them an edge that customers – and OEMs and other resellers – appreciate. Whether that will continue – or whether consolidation will reduce the field considerably – will become evident sooner rather than later. But for now the big picture trends that are driving the industry are reflected in the focuses of the still-fragmented vendor line-up.

The big five

Joe Tucci, CEO, EMC

Look back half a dozen years and the high-end disk storage market was a very different place. Hitachi Data Systems was gouging EMC’s Symmetrix sales with a hot product called Lightning; IBM, having missed the storage array boat on its first round, was still playing catch up with the newly launched ‘Shark’; and HP had yet to graft on the old Digital Equipment storage heritage through its acquisition of Compaq.

Since then the bumpy competitive playing field among the Big Five – EMC, IBM, Hewlett-Packard, Hitachi/Hitachi Data Systems and Sun – has levelled. Now, argue storage sector analysts, product differentiation has narrowed among the leading vendors’ disk systems, with each regularly leapfrogging each other in terms of performance and capacity.

At present, for example, EMC is on a roll, as its largest customers upgrade to the January-launched Symmetrix DMX-3, the first mainstream storage device capable of holding a petabyte of data. In the first quarter alone, half of all Symmetrix sales came from DMX-3, helping to boost EMC’s revenue growth to 14%. While those are certainly impressive numbers, they just show the requirement for a bigger box into which to throw ever-expanding quantities of data; evidence of customers’ real priorities lie elsewhere – and, indeed, storage hardware was priority number nine in the Morgan Stanley survey of CIO buying trends.

Those priorities show up in sales of the company’s storage software as well as its Centera systems used for assured content storage that have been growing at more than 30% in recent times.

In fact, all market leaders have tried to shift the discussion to a higher plain. Information lifecycle management (ILM), the targeting of data at different tiers of storage, depending on the value of that data to the business, has allowed storage companies to engage in more strategic discussions with customers about their on-going information needs.

And the movement and management of data in an ILM environment is largely a software story. But it is an incomplete story: “The storage challenges that organisations face in their data centres is not going to be fixed by today’s storage products,” says James Whitemore, head of marketing for Sun’s newly formed Data Management Group, which, since Sun’s $3 billion buy out of Storage Technology (StorageTek), brings in a quarter of the company total revenues.

That acquisition was widely viewed as Sun’s ILM play. The combination of both companies’ disk systems businesses with StorageTek’s strength in tape and virtual tape devices will be augmented by software elements key to ILM, says Whitemore: virtualisation, ID management, encryption. At the same time, Sun will continue to plug a gap in its own portfolio at the high-end by reselling Hitachi Data Systems’ TagmaStore systems, rebadging them as the StorageTek 9900 series.

HP also sources its high-end storage gear from Hitachi, but that is just one of scores of products it pulls together to deliver a broad range of integrated storage systems and services. Arguably it is the world’s largest storage supplier if all the internal storage devices that ship with its PCs and low-end servers are included. (For the purposes of this enterprise Storage Top 20, they are not.) However, ILM and software are its fastest growing areas of storage, and as Andrew Manners, its head of storage for the UK, says, “the focus is there because customers see it as much more strategic – they see ILM as the way to make information more available, reduce the cost of storage and ensuring compliance.”

The hot challengers

Dan Warmenhoven, CEO, Netapp

The broad, high-end companies, however, are not the growth pacesetters. As storage has become something of a commodity, Dell has established itself as a true force in the sector, with revenues growing 38% to $1.9 billion in the company’s fiscal 2006. The upper end of its portfolio is a co-badging of EMC’s Clarion range of mid-sized storage systems, an arrangement EMC, with its large direct salesforce, has found highly complementary. Below that, Dell offers its own PowerVault range of direct attached and network storage devices.

One of its chief targets there is the company that defined the network attached storage market, Network Appliance. Along with EMC, it dominates that NAS sector, growing its NAS capacity shipped in 2005 by 56%, according to IDC, and giving it a 43% share of the market. But NetApp wants to challenge EMC on the storage market leader’s home territory.

In May, it made a serious bid for the high-end market with the launch of a new fibre channel SAN range – the FAS6000 – a modular design that scales to 500TB. But NetApp has a long way to go to catch EMC. IDC put its revenue market share of FC SANs at 1.6% for 2005.

The software giants

Symantec is one of only two ‘pure-play’ software companies in  the Storage Top 20, and CEO John Thompson sees that as the company’s strongest card. “We think we deliver something uniquely different: we’re not trying to lock the customer into a hardware stack,” he says.

Its movement into the storage market in mid-2005, with its acquisition of Veritas, allowed it to create a data protection division that provides back-up and archiving software from the data centre down to the desktop, while its storage and server management segment offers products for storage administration, optimisation and availability. Together these make up a business of around $2 billion, growing at 7% a year, and fuelled by on-going sales of the Veritas stalwarts, NetBackup and Backup Exec, which are by far the dominant products in the back-up sector, with a 46% market share.

Symantec justified the acquisition of Veritas with a vision of ‘information integrity’, resting on a combination of security, availability and management technologies. As yet, the cross-pollination of the two companies has gone little further than combining email management, archiving and protection, and the company lacks a solid data encryption toolset.

Veritas’ longstanding rival in storage software, Computer Associates (now known as CA), is perhaps best known for its ARCserve back-up tool, but it has built an extensive line-up of storage products under its BrightStor brand – tools that range from mainframe back-up and virtual tape systems to a storage resource management suite and SAN designer.

The switch makers

The role of the switch within networking has a direct parallel within data storage networking. And the remit of providing data switches and data directors that can move data around at multi-gigabit per second (Gbps) rates is proving highly lucrative to a small group of companies – McData, Brocade Communications, QLogic, and a relative new entry to the storage market, Cisco. Their growth is being fuelled by fast take up of fibre channel SANs, and all are currently boasting 4Gbps products.

The back-up systems experts

Rick Beluzzo, CEO, Quantum

StorageTek has been the undisputed champion of enterprise tape systems for more than a decade, but now there is a new force looming large.

Quantum, the former disk drive maker turned back-up tape and disk appliance company is in the process of acquiring Advanced Digital Information Corp (ADIC) for $770 million, a company that Quantum’s EMEA VP, Franco Mezzullo, describes as “having a large footprint in the enterprise”.

That has been driven by a mix of direct sales and reseller deals with some of the giants of storage. Although analysts have been predicting for years that EMC would be drawn into the tape systems market, its solution to date has been to resell ADIC kit. Other OEMs and partnerships include Hewlett-Packard, Fujitsu-Siemens, IBM, Sun and Dell.

But the combination with Quantum’s appliances for the mid- and low-end will create a company that serves tape and virtual tape customers from the entry level to the enterprise, says Mezzullo.

At the lower end of ADIC and Quantum’s market, companies such as Overland Storage and Tandberg provide disk and tape appliances either through resellers or re-badged by OEMs. Their traditional tape ranges are being broadened by disk-to-disk-to-tape environments which customers are employing to speed up overnight back-up and extend the back-up window.

Host bus adapter specialists

Host bus adapters are vital components of fibre channel storage networks, controlling the transfer of data between the host and the target storage device. The specialist nature of the of FC HBAs has enabled two companies in particular – QLogic and Emulex – to establish large, buoyant businesses on the back of the technology.

As elsewhere, their momentum is being fuelled by the rapid rise of storage area networking. That resulted in a 43% growth in QLogic’s FC HBA sales in its last financial year and puts Emulex’s HBA growth at 20%.

The OEM suppliers

Look under the covers of a NetApp machine; the name Xyratex should be stamped somewhere. Half of Xyratex’s $680 million annual revenues come from selling “storage enclosures” to NetApp. As the former storage systems-making division of IBM, the company (based in Havant in Hampshire, UK), say its petabyte shipped rate has been growing at over 70%. Analysts predict it will only grow in stature as NetApp moves upmarket with its emerging SAN range.

Engenio is in a similar position, with two differences: one, its client base is much broader, and two, it has ambitions to be a branded storage vendor in its own right. As a division of chipmaker LSI Logic, it had revenues of $675 million in its fiscal last year, building machines for IBM, NCR Teradata and StorageTek, among others.