Sachs Sees Storage Spending Surge

'Tis the season for spending on storage, according to investment firm Goldman Sachs & Co.

The final quarter of the year is usually strong for storage sales, as companies that have stayed under budget for nine months go through their annual budget flush. This year will be no exception, according to a research note issued by Goldman Sachs analyst Brenden Smith.

Smith's storage contacts suggest that the quarter is shaping up to be seasonally strong. "While storage hardware feels a bit better than software at this point, should the current pace continue it would bode well for the December quarter performance of storage arrays, HBAs, and possibly software," Smith writes.

While storage array sales have been strong throughout 2005, it has been a lumpy year for HBAs and software. HBA vendor Emulex Corp. (NYSE: ELX) is looking to bounce back after several quarters of subpar results (see Emulex Cuts Guidance, Jobs, Emulex Hits the Deck, and Emulex Short on Revenue). In Emulex's favor: It traditionally benefits from a strong fourth quarter; new high-end SAN systems from Hitachi Data Systems (HDS) and IBM Corp. (NYSE: IBM) should help; and channel inventory issues that hurt earlier this year appear to be resolved.

QLogic Corp. (Nasdaq: QLGC) should also benefit from strong HBA demand, as well as switches on IBM blade servers in what is usually IBM's strongest season, Smith writes.Customer checks leave Smith "cautiously optimistic" about storage software market leader Veritas Software Corp. (Nasdaq: VRTS). In the plus column for Veritas are apparently strong channels in Europe and direct sales in the Western U.S.; on the other hand, Smith writes that Veritas' U.S. channel sales have yet to be positively affected by fourth-quarter seasonality. Though it's coming off a solid quarter, Veritas might still feel the effects of lingering pricing pressures that cost it and other enterprise software companies last June (see Veritas Rebounds, Software Slump Is Deal Time, and Veritas Takes a Dive).

Dave Raffo, Senior Editor, Byte and Switch