Analysts Weigh Storage Market, Look Ahead to 2008

Storage software spending is growing faster than hardware spending, a trend that's likely to continue into 2008.

According to IDC, external disk storage systems revenue was up 5.1 percent year-on-year for the third quarter of 2007, while storage software revenues rose 9.8 percent.

While growing faster than hardware, the storage software market is still substantially smaller than storage hardware: Software turned in revenues of $2.8 billion last quarter, while the worldwide disk storage systems market reached $6.3 billion in the same period, by IDC's reckoning.

In software, the word is archiving. "Overall market growth was driven by strong performance in both the archiving and data protection and recovery markets," said IDC analyst Michael Margossian in a prepared statement. "Customer demand for storage replication seems to be cooling off, while the need for archiving appears to be picking up."

IDC says archiving software grew 13.6 percent year-on-year last quarter, and the firm attributes this in part to a greater interest among users in e-discovery, regulatory compliance, and overall storage optimization. Data protection and recovery, another key segment, was down sequentially but also grew 13.1 percent year on year.IDC noted that five out of the six top vendors in storage software continued to show double-digit year-on-year growth last quarter:

Table 1: Top 5 Vendors, Worldwide Storage Software Revenue, Third Quarter of 2007 (Revenues are in Millions)

Despite the evidence that storage software is growing faster than hardware, a user survey by financial firm Robert W. Baird & Co. indicates ongoing interest in storage wares. Of 101 enterprise IT managers surveyed, most reported interest in buying storage products next year for data center consolidation and virtualization.

Hardware is a key factor for most of those surveyed, who rated their satisfaction with storage switches at 8.2 on a scale of 1 to 10 (10 being highest satisfaction), and gave backup software the lowest mark of 7.4.

Still, server virtualization was the IT technology given the highest satisfaction rating by respondents -- an 8.3.iSCSI and NAS continue to factor in many users' hardware plans, according to the survey. "If you assume 3% physical server CAGR for the next two years, storage attach at our survey participants would grow by approximately 17% CAGR for FC SAN, 20% CAGR for NAS and 82% CAGR in iSCSI," Renouard writes.

This outlook for iSCSI is supported by IDC's view: "iSCSI is still poised to be a huge opportunity for storage systems vendors," states that firm's Brad Nisbet in an email to Byte and Switch. "Since iSCSI is based on IP protocols, namely Ethernet, it is a natural fit for smaller companies who are looking to benefit from networked while leveraging familiar protocols such as Ethernet. In addition, and possibly even a larger opportunity in the near-term, we believe that iSCSI will be a preferred storage protocol to support the back-end storage in virtualized server environments (VMWare)."

Analysis of both the IDC and Baird figures appears to support solid storage spending in 2008 -- with reservations.

"We are cautiously optimistic regarding IT spending in 2008," write analyst Daniel J. Renouard and colleagues in the Baird survey summary. "We believe the vast majority of IT projects today possess strong ROI with very few described as discretionary by our participants. We would not be surprised by somewhat moderated 2008 IT budget discussions given the persistent discussion of recession risk, though we do not expect an outright collapse in spending."Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.