Economic Downturn Hits Storage Spending

The bad economy and spending cutbacks by companies in a wide variety of industries will result in smaller storage budgets in 2009, according to a survey released today by TheInfoPro Inc. (TIP) . The research firm did one-on-one interviews with IT and procurement personnel at nearly 65 large companies and government organizations and found that, on average, storage budgets will decrease by around 14 percent in 2009.

The decline in storage spending began in the fourth quarter of this year, with nearly one third (32 percent) of those interviewed saying they expect to end up spending less in 2008 than had been originally budgeted. Their average spend on storage in 2008 will be $10.7 million.

Some 68 percent of those interviewed expect their company to spend less on storage in 2009 than in 2008, while only 32 percent expect to spend the same or more on storage next year. That's a big drop from a year earlier when 81 percent expected to spend more on storage in 2008 than they did in 2007.

Only 21 percent of those interviewed expect to spend more than $10 million on storage in 2009, a drop of nearly 10 percent from a year earlier. Hardest hit will be technology companies, where 75 percent expect to spend less on storage next year; financial services, where 68 percent expect to spend less; and manufacturing, where 63 percent plan to spend less.

"We saw pockets of strength in health care and pharma. Oil and gas is not looking too bad, and there were positive signs in some parts of government, but the sample was small," TIP CEO Ken Male told Byte and Switch.The economy isn't the only reason companies are pulling back on storage spending, despite the continuing need to store more data for longer periods of time, Male said. A combination of aggressive buying of storage capacity earlier in the year and better use of lower cost technology for tiered storage systems has created excess capacity at many companies, which is offsetting the historic fourth-quarter trend of spending any money left in the IT budget and buying a lot of storage as the year ends.

"A lot of IT organizations had gotten used to making big purchases at the end of the year -- we call it a 'budget flush' -- just in case the money isn't available in the first quarter of the next year," Male said. "We're not seeing a lot of that compared to previous years. As you would expect, there is a lot of belt tightening and not as much new development and new applications that would require new storage capacity."

IT managers also foresaw the credit crunch and the economic downturn coming and bought a lot of capacity at the end of 2007 and at the start of 2008. "They probably overbought and now are saying 'I can live with what I have' as the company mandates cutbacks," he said.

A third factor is that storage managers are more sophisticated and making smarter buying decisions, Male said. "They've gotten much better at buying different tiers of storage and not treating all data equally," he said. "They're not storing everything on a Fibre Channel SAN. They're using high-density drives with a lot of capacity and other lower cost technologies."

Male said the survey indicated that some companies are starting to try to reclaim unused and over-provisioned storage and deploy storage virtualization systems to increase utilization rates, but that progress has been slow compared to the adoption of server virtualization. He expects that pace to pick up in the coming years.TIP said a typical comment from an IT procurement manager at a financial company highlights the reasons for an upcoming decline in storage spending: "Risk and need for storage have not gone away, and volumes are increasing, so the appetite for storage is still high -- but we have no dollars to spend."

Other research has indicated that storage has been one of the stronger technology sectors this year. Research firm IDC earlier this month reported that the worldwide storage software market had revenues of $3.1 billion in the third quarter, an increase of 11.6 percent from the same quarter a year ago. It was the 20th consecutive quarter of year-over-year growth for storage software, the firm said. It also reported that that factory revenues for worldwide external disk storage systems increased 8.8 percent year-over-year to hit $4.9 billion in the third quarter. The overall market for disk storage systems grew 1.1 percent to $6.6 billion, IDC said.Male noted that the IDC numbers came from vendors that were reporting factory revenues, while the TIP numbers came from interviews with IT executives buying products: "Apples and oranges. They are not comparable," he said.