Semi-OT:Compaq's Strong Storage
Often overlooked as a player in the enterprise data storage industry, Compaq Computer
Corp. is among the early leaders in this exciting new sector. Investors interested in
long-term opportunities in emerging industries should put Compaq on their radar screen.
By Vince Hanks (TMF Elwood)
March 27, 2001
fool.com
When you think of the emerging leaders in the midrange data storage
market (serving companies with between 5 and 100 servers), names
such as EMC (NYSE: EMC), IBM (NYSE: IBM), and
Hewlett-Packard (NYSE: HWP) generally come to mind. It may
surprise you that Compaq (NYSE: CPQ), best known for being the
number-one PC maker in the world and the third-largest computer
seller (behind IBM and Hewlett-Packard), has taken a seat at the card
table and is presenting a formidable hand.
Compaq is now considered the market runner-up to EMC, and having
actually shipped more storage area networks (SANs) than any other
vendor at this time, it has in many ways already grabbed the crown that
it covets.
Compaq's edge thus far has been its ability to adapt to heterogeneous systems, accepting
components, including storage, from other vendors. On top of that, Compaq's StorageWorks
product is cheaper than EMC's Symmetric, and according to Mark Lewis, vice president and general
manager of Compaq Enterprise Storage Group, StorageWorks also boasts more cutting-edge
technology.
Compaq has recently introduced to the marketplace the VersaStor software package, a
storage-pooling technology that addresses growing need for storage capacity. VersaStor helps erase
the boundaries that exist today between disparate storage systems, and allows them to be combined
into a SAN-attached storage pool that is simple to manage as a single resource.
A VersaStor storage pool can grow or shrink dynamically and transparently to servers and
applications, and supports server-less, transparent data migration. "Our VersaStor Technology will
change the rules for enterprise storage and storage utilities," says Howard Elias, vice president and
general manager of Compaq Storage Products Group. "Just as RAID enabled open storage to
support critical applications, VersaStor will enable open storage to support the enterprise storage
infrastructure."
Software, in data storage, is the goose that laid the golden egg. Storage software applications add
value and improve functionality of data storage systems, and on top of that, command exceptional
profit margins. Once the software is written and a user base is established, the costs of producing and
distributing software drops very significantly, especially online. Even with eventual updates and
upgrades, gross margins of 80-90% are not uncommon in the software industry.
Compaq already has an impressive base of supporters for its new application: Emulex Corporation
(Nasdaq: EMLX), JNI Corporation (Nasdaq: JNIC), McDATA Corporation (Nasdaq: MCDT),
QLogic Corporation (Nasdaq: QLGC), StoreAge Networking Technologies, and Troika
Networks have signed letters of intent to develop VersaStor-ready products. Brocade
Communications Systems (Nasdaq: BRCD) also supports the VersaStor initiative.
Where Compaq may be lagging EMC is in its sales and support staff. Steve Duplessie of Enterprise
Storage Group said EMC's superior sales force gives it a big advantage. He went on to state that in
the "last reported quarter, Compaq lost [market] shares across the board, whereas EMC grew
50%."
EMC's acquisition of data storage management maker SOFTWORKS in January of 2000 has lead
to an impressive portfolio of software offerings and has helped entrench the company as the current
leader in software and support. There's no resting on one's laurels, however, with Compaq, IBM,
Sun Microsystems (Nasdaq: SUNW), HP, and Dell (Nasdaq: DELL) all fighting for the upper
rungs of the ladder.
For potential investors, much more important than any current technological superiority or level of
service will be the ability to adapt and integrate new technologies and digressions of infrastructure.
The data storage industry is just a ripple in what will one day be a tidal wave, and those hanging ten
in the pipe will be the companies with the greatest adaptability. Compaq has shown signs of this
strength in the early stages with its current offerings.
Compaq's revenues for year 2000 were $42.38 billion, with around $2 billion attributed to storage
systems, or just under 5% of total sales. The division is expected to grow by 38% in 2001. Compaq
Computer does have a Drip plan, although it has $5 investment fees. |
