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Technology Stocks : All About Sun Microsystems
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To: jim kelley who wrote (28034)2/20/2000 5:00:00 PM
From: Bill Fischofer  Read Replies (2) of 64865
 
Re: Storage margins

Actually, the opposite is true. Margins for captive storage are eroding, however as storage moves to the center of the enterprise the margins on processor-independent enterprise storage systems continue to be robust. SUNW vs. EMC in storage is in much the same position as Wintel vs. SUNW in processor hardware. SUNW proponents make a strong argument that raw price is not the issue, but rather total cost of ownership. This is doubly true in storage where the key measure is not dollars per gigabyte but rather headcount per terabyte. Storage demand continues to grow exponentially as a result of the Internet and ecommerce initiatives, however no company can afford to grow IT headcount at this rate. Even if the budget were there, the people simply are not. Therefore storage productivity must grow at a rate commensurate with storage demand. This is the core of EMC's value proposition and is why they are where they are today. The former "peripheral" moves to the center of the enterprise and the former "central processor" moves to the periphery. In IT the highest margins flow to the center (which is why IBM, SUNW, HWP, etc. have always fiercely fought to protect their central processor turf) while the periphery suffers commoditization. For SUNW to really compete with EMC would entail abandoning the processor as the central focus entirely. Understandably today's processor vendors are loath to embrace this change, which is why SUNW continues to sell storage mainly as an add-on to SUNW processor accounts just as IBM sells storage mainly as an add-on to IBM processor accounts, etc. In the mainframe model which was originated by IBM and which is currently championed by SUNW and others a central processing complex orchestrates a "disk farm". In the new model a central enterprise storage network orchestrates a "server farm". It will be interesting to see if any of the current processor vendors can change their stripes and make storage the real focus of their business.
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