Have you read "The Innovator's Dilemma?" I'm only partway into it, but one of the observations seems to be that it is much easier for an "upstart" technology to move upmarket than for the established technology to move downmarket
I'm curious why there seems to be an eagerness to pit NTAP against EMC when there are structural changes occuring in the disk drive business which affects NTAP more than anybody else.
Disk drives are the building blocks of the RAID arrays of NTAP, Dell, HWP, SUNW, CPQ, IBM and EMC. The disk drive industry is now just coming out of the worst downturn in its history and given the level of competition that remains, everybody is now looking at the prospect of 10-20% gross margins and 5-10% net margins which practically dictate a move upstream.
Western Digital
connex.com
Quantum
snapserver.com
Maxtor
maxattach.com
Seagate
xiotech.com
SEG and IBM lead the industry with about $6.3-6.4 billion in disk drive revenues. IBM invented the tape library market and is still a major player. SEG and Quantum also have significant tape drive and library businesses to go with their NAS/SAN products. SEG owns 30% of Veritas, the storage management vendor, and is the primary disk drive supplier of EMC which is using Clarion (Data General) to address the middle market. The low-end of the market is a natural place for SEG, the dominant high-end drive vendor, to go after higher margins.
The problem has always been how the move to the RAID array business will affect the disk drive industry's relationship with its major customers -- Dell, Compaq, HWP and to a certain extent, IBM -- but I think the lousy economics of the disk drive business, which has benefited the box makers in terms of cheaper drives, will ultimately allow the drive makers to co-exist with the box makers in a booming market long enough for the drive makers to carve out substantial businesses out of the low-end array market with the more intrepid ones like SEG and Quantum, which have substantial library businesses, able to go further upstream in search of higher margins.
That changes the dynamics of NTAP's business more than anybody else's because, at a $32 billion market cap, or more than the entire disk drive supply chain combined, a lot of growth is already factored into the stock. So, the observation is still valid that its easier for an upstart technology to move upmarket only in this case, it is the manufacturers of the disk drives that are moving upmarket.
The comparison to EMC may be premature.
This article in INSIGHT, an industry publication, provides additional context.
The Low-profit trap in Hard Disk Drives, and How to Get out of it
idema.org |
