Storage giant EMC's announced reduction to operating expenses could be the first outward sign of a slow down in the last bastion of growth in the IT sector - storage.
According to Australian industry pundits, storage, long the golden child of the global IT arena, may be in for rough times as the spending drought which has plagued the rest of the industry finally takes hold.
Based on fiscal third quarter outlook, EMC has announced plans to reduce operating expenses including its workforce, real estate and certain inventories. Globally, EMC plans to reduce its workforce by about 10 per cent before the end of the year.
While there is no slowdown in the demand for storage capacity, corporate clients are tending toward less expensive options, leading to a revenue squeeze across the industry, according to IDC analyst Graham Penn.
-What we are seeing from EMC's decision to cut back on expenditure is a good business decision. They are responding to the market in a very proactive way," Penn said. -We are dealing with a market that wants to buy as much capacity as it can, as cheaply as it can."
Although the other storage giants have yet to wince, all signs are pointing to them feeling a similar pain.
Penn points out that although expenditure is slowing, the demand for storage capacity continues to grow leading to increased interest in lower cost network attached storage (NAS) solutions, rather than the higher outlay storage area network (SAN) cousins.
Industry pundits are playing down the slowdown. David Templeton, marketing manager at vendor and integrator StorageTek said that while the company's revenues continued to grow, they had come in under what was initially expected.
-We are not hitting the wall, we were just a little optimistic after so many good quarters," Templeton said. -Dollars are tight so people are deferring their storage expenditure, but they will need to buy it eventually so we are still making the sales."
A similar situation confronts Mike Sparks, product marketing manager of Quantum Asia Pacific, who says that while end users are increasingly opting for cheaper NAS solutions, many are also awaiting emerging protocols such as iScsi and Infiniband, both of which will compete with SAN technology.
-Both of these offerings are due to hit the market early next year and are promising to offer fibre channel storage like SANs, but they will be cheaper," Sparks said. -So people are holding off on purchases to see what happens."
Others in the industry are sticking to the bravado long associated with the storage sector. Harry Christian, sales and marketing for storage software vendor Network Appliance is largely unconcerned about the revenue squeeze, pointing out that it is primarily due to increased competition and commoditisation in the hardware market.
-The software is not as badly effected because at the end of the day it is about managing more data with less people, it is not an extra expenditure it is a saving," Christian said.
IDC's Penn agrees pointing out that recent signs of consolidation in the industry were largely representative of hardware-focussed vendors attempting get some kudos by incorporating smaller companies with storage software solutions.
-This kind of consolidation has been going on for a long time," Penn said. -It helps the hardware vendors to spread themselves more across the market."
However, if market indicators are right, the revenue squeeze may lead to further consolidation before the market begins to improve.
Meanwhile, at EMC there is a clear sense of digging in for a slowdown. EMC executive chairman Mike Ruettgers said the while history shows that the economy will rebound, the company will trim down and work hard in order to survive into the next boom.
