When Rumors Fly

The overall tech industry is not immune to the economic downturn. And despite the constant need for more storage, the storage industry isn't immune either. That, in turn, has generated a steady stream of rumors and questions about the future and viability of various storage vendors, resellers, and system integrators.

It is clear that the economy is bad, may get worse, and probably won't rebound for quite a while. Many tech executives and industry analysts thought the impact on IT spending would be mild. That attitude is changing. Analyst groups are still saying there will be growth in IT spending next year, just a lot less than they originally predicted. IDC , for example, this month said it was cutting its forecast of growth in worldwide IT sales to 2.6 percent, down from 5.9 percent. In the U.S., IDC said spending will grow just 0.9 percent in 2009, down from the 4.2 percent predicted in August. Overall, IT sales will decline by hundreds of billions of dollars over the course of the next four years, IDC said.

Storage is considered a bright spot in an otherwise gloomy tech market, with sales for hard-disk drives and online storage services expected to remain strong. That could change, however, if things get worse and companies cut back on spending even more.

At the same time, the stock prices for the shares of many companies -- including tech vendors -- are near all-time lows and credit is still hard to find. That's bad news for companies that need cash to pay off debt, hire new staff, or just keep operating.

When Wall Street firms go under and the futures of companies like General Motors are in doubt, it is no surprise that customers, bloggers, and analysts are raising questions about storage vendors and other tech companies. Sun Microsystems Inc. (Nasdaq: JAVA), for example, reported that it is cutting 18 percent of its workforce and reorganizing after losing billions of dollars. That raised doubts about its long-term viability, and there was talk about selling off the company. Of course, Sun has been dealing with those questions for many years. The same kind of questions were raised when storage vendor Pillar Data Systems Inc. laid off around 150 employees, or about 30 percent of the company. Pillar is backed by billionaire Larry Ellison, so it may have an easier time getting its hands on some cash if its needs to. There were even questions about the future of Quantum Corp. (NYSE: QTM), a leading company in the hot data de-duplication market with good technology and strong partnerships.I am not in the prediction business, so I have no idea whether GM, Sun, Pillar, Quantum, or others can ride out this storm. What is more interesting is the number of emails I've gotten asking whether I've heard that "Company ABC has laid off a bunch of people" or that "Company XYZ has stopped paying its bills." In most cases, it is hard to know if these questions and rumors are coming from a customer or a competitor seeking to damage a rival. Also, these are the kind of rumors that can be hard to confirm from a distance if the company isn't willing to go public with the news.

While it usually isn't wise to pay a lot of attention to rumors, these questions are especially important if you are a customer of ABC or XYZ and your entire storage infrastructure is based on their products. Then you have a reason to be concerned and need to take steps to protect yourself and your company.

Those who have lived through economic downturns before know the drill. In most cases, you should buy from well-established vendors that have a track record of surviving or even thriving during tough times. You should look into a vendor's financial health and stability, especially if you are considering a new vendor for crucial elements of your infrastructure. You should look for and line up alternative suppliers for commodity products, and consider splitting your order among two suppliers. Have a backup plan for service and support if your main supplier has problems and isn't able to provide what you need. And don't just focus on the makers of products. Many storage resellers and systems integrators may disappear if the economic downturn lasts longer than expected, so have alternatives in mind in case you need to move quickly.

The good news is that strong companies with good products often emerge even stronger once the economy turns around. Many will be able to fill holes in their portfolios by picking up struggling competitors on the cheap or will even enter new markets. But whether that will take months or years is anybody's guess.

That's why it is important to be careful and cautious when picking a technology partner. You can't tell your co-workers to create less data, so you have to be clever about how you use what you have and even smarter about what you buy. IT budgets won't loosen up until the economy improves, so a wise decision now will pay dividends when things get better -- no matter how long that takes.0