Storage Market News Has Subtext of Uncertainty

Despite a round of strong-looking financials from key vendors and a slew of startup funding announcements, there are rumblings that all is not well in the storage industry.

At least one analyst, for example, thinks IBMs apparently solid Q1 results last week mask a less-than-positive spending climate.

“Although investors primarily applauded IBM’s report last week, the strength was primarily in software and services, not in hardware,” wrote Caris analyst Shebly Seyrafi, in a report released this morning.

The analyst estimates that IBM’s disk storage business grew six percent year-over-year, but its midrange business grew just 2 percent over the same period and actually fell 30 percent sequentially.

Another vendor experiencing a tough spending climate is Seagate, which saw its revenues decline 14 percent sequentially when it published its Q3 results last week.LSI, which is an OEM partner of both Seagate and IBM, may also feel the impact of this spending slowdown when it publishes its Q1 results tomorrow, according to Seyrafi. “We do not recommend that investors buy shares of LSI before its Wednesday report, because the incremental news out of Seagate and IBM last week was not positive for the company,” he wrote.

Analysts are divided on the prospects for storage bellwether EMC, which will report its Q1 results tomorrow morning. In a note released last week, Citi Investment Research analyst Paul Mansky warned that that “storage appears headed further south for the summer." He reduced his rating on EMC from "Buy" to "Hold." “Indications are that the economic crisis is impacting verticals outside of financial services, as well as geographies outside of the U.S.,” he wrote.

The analyst also warned that EMC and other systems vendors like NetApp could be victims of the rise of virtualization and deduplication. "Improved utilization rates via server virtualization, deduplication and thin provisioning are allowing IT staff to do more with less,” he explained. “We believe this latter dynamic is particularly impacting the storage 'box' companies [EMC, NetApp], while the 'pipes' [QLogic, Brocade] are relatively insulated.”

Other analysts are more bullish on EMC’s prospect. ”Despite some negative chatter on EMC’s CQ1, we estimate that the March quarter ended well for EMC,” wrote Pacific Growth Equities analyst Kaushik Roy, in a note released last week. “We believe EMC, LSI, Symantec, QLogic, and Hitachi Data Systems may have met their CQ1 targets.”

Meanwhile, uneasy rumblings persist below the surface of other financial transactions. Clustering startup ONStor, which clinched $25 million in funding last week, has also had to tighten its belt recently, quietly shedding a sizeable chunk of its workforce.An industry source tells Byte and Switch that the vendor laid off around 24 people in late February, almost a fifth of its total employee census.

”There was a reduction in force on February 26th and it did affect 24 individuals from all areas of the company; there was no singular division/department that was more greatly impacted than others,” wrote ONStor spokesman Douglas Gruehl in an email today. “This was a strategic move -- ONStor has realigned its company strategy to grow in a lean way into the upcoming year(s) in an uncertain/leaner economy.”

In his email, Gruehl also confirmed that ONStor CFO Frank Laurencio and a handful of other staff voluntarily left OnStor following the February layoffs. “Yes, other people have left since then, but this is simple normal attrition in Silicon Valley,” he wrote, adding that seven-year ONStor veteran Laurencio quit to spend more time with his family.

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