The Storage Rollercoaster

Mixed messages are once again issuing from the storage segment: Despite growth in startup funding, at least one major supplier decries IT spending patterns even as its chief competitor cites fresh growth. Meanwhile, mergers continue unabated and IPOs abound.

Let's take that from the top. Late last week, figures from Ernst & Young and DowJones VentureOne showed that VC funding may be slightly down in the storage sector, though investment remains robust. (See Storage Funding Finds Its Feet.)

VentureOne's research reveals that storage-related financing accounted for just $164 million of the overall U.S. venture market of $7.4 billion in the second quarter of this year. But that storage investment was up about 64 percent from just under $100 million in the prior quarter. Further, more and more startups are clinching late-stage deals to fuel IPOs and M&A activity.

Case in point: The $27 million mezzanine round announced by ONStor on August 1. CEO Bob Miller told Byte and Switch that this money will be used to take the firm public sometime within the next 12 months. (See ONStor Secures $27M, Eyes IPO.)

In this vein, need we remark that going public is the rage among storage startups? An unprecedented number have gone public this year, or are seriously planning to do so. (See Storage Forecast: Clear, Sunny, Data Domain Debuts With Q2 Loss, Voltaire Strikes IPO, BladeLogic Looks to $80M IPO, Netezza Closes IPO, Double-Take Files for IPO, EMC Still Rules VMware, and Compellent Preps for IPO .)There's also no slowdown in consolidation – see F5's proposed purchase of Acopia for $210 million. (see F5 Acquires Acopia for $210M.)

Despite startup momentum, there are risks involved in the public plunge. Isilon's latest figures disappointed investors, as the newly public firm struggled with deal slippage and a sales support shortfall. (See Isilon's Losses Roll On.)

Some established players are also grumbling. NetApp has reported – for the second time – that its upcoming quarterly earnings are likely to disappoint. (See Spending Slowdown Slams NetApp.) The vendor, which will release quarterly results on August 15, now expects first-quarter revenues between $684 million and $688 million, down approximately 14 to 15 percent on the previous quarter.

In stark contrast, EMC cited U.S. revenue growth of 20 percent year-over-year in its latest report in July. (See EMC Reports Q2 Results.) And CEO Joe Tucci had this to say: "In the Americas, I am pleased to report that we saw some pick-up in spending in U.S. enterprise accounts over Q1." (See EMC Reports Q2 Results.)

Where's the bellwether in all this? Is it even possible to gauge the real "health" of the storage market, given so much seemingly conflicting information?First off, anyone involved in buying or selling storage products needs to buckle up for the ride. Storage networking is incredibly volatile, and the fits and starts are only increasing, as storage takes a bigger role in data center technology.

What's more, storage itself is undergoing a kind of revolution, as users demand improvements in technology at every level. Is it really any surprise that some false starts, partial solutions, and failed partnerships occur when there's so much innovation underway?

The upside is that storage networking is an exciting place to work these days, but even more importantly, an exciting place to shop. The struggles and momentum of suppliers reflect their eagerness to tap market demand. That puts users in power, ready to drive change by accepting or rejecting products and services.

Hang onto your hats. But don't forget who's driving this train.

— Mary Jander, Site Editor, Byte and Switch