Storage II: A Fight for the NAS Space
[BRIEFING.COM - Robert J. Reid] As part of our ongoing series on storage, we take a look at the filing companies which is fitting given the fact that Network Appliance (NTAP) reported late last week. There has been much discussion as to whether Storage Area Networks (SAN) or Network-Attached Storage (NAS) will win out in the end. Filing companies compete almost exclusively on the Network Attached Storage (NAS) side.
What's a Filer?
A filer is a dedicated file server that supports multiple network environments: UNIX, NT and the Web. NTAP coined the phrase "network appliance" which are networked devices that were designed to do one thing, but to do it very well. Being optimized to perform one function very well makes these appliances easy to use, are very manageable and can provide better performance at a lower cost relative to general purpose server-storage combinations.
Quick Recap: SAN vs. NAS
There is a lot of confusion in the the investor community as to the difference between SAN and NAS.
Storage Area Networks
With SAN, you're putting a network between the servers and the storage which provides greater scalability, availability and manageability than attaching the storage to the servers. This system allows you to easily add storage to the network without having to take down currently operating servers or storage. With a network, you can pool the available data storage space allowing data to be stored wherever there is space. While SANs are the preferred storage solution in very large computing environments with particular data access characteristics, they have a number of disadvantages. First, SAN installations require significant upfront costs, and SAN systems are expensive to maintain. Also, they require the implementation and maintenance of a separate and proprietary Fibre Channel network, which is not compatible with the Fibre Channel networks of other SAN vendors.
Network-Attached Storage
Think of NAS as Lego building blocks where you add storage on a smaller scale as you need it. NAS appliances can be easily connected to an existing computer network with additional appliances added over time as storage needs grow. NAS appliances can also complement a SAN deployment. These characteristics make NAS appliances a scalable, versatile and cost-effective data storage solution. Because storage appliances are designed to perform a few dedicated functions, NAS appliances are ideal for companies seeking a storage solution that is easy to install, use and administer; while also easy to integrate with existing infrastructure components. Also, NAS has a relatively low acquisition price and low total cost of ownership.
The debate between SAN and NAS is becoming less and less relevant. The distinctions between SAN and NAS will blur over time. The two approaches will likely merge into one network as NAS appliances are complimentary to a SAN environment.
A Fight's Brewing
Network Appliance (NTAP) is the leading vendor of NAS devices (60% market share) and has built a considerable business around its flagship and crown jewel WAFL file system. NTAP's success has drawn the attention of EMC and others. A number of tech heavyweights are getting into the NAS space including Dell, Sun, Compaq and possibly Microsoft. However, with the shift towards higher IT dollar spending on storage relative to servers, both EMC and NTAP should gain share at the expense of the system vendors.
While there are a number of players entering the fray, it's EMC that has gotten NTAP investors spooked due to its recently introduced Celerra product which works with its Symmetrix products and competes with NTAP's high end products. On a recent conference call, EMC boldly said that they expect to be the NAS leader by the end of the year. While generally avoiding commenting on competitors in its quarterly conference calls, NTAP made it a point to downplay the impact from EMC. The company cited an 80% customer win rate when going head to head with competitors.
Also, even though 30% of NTAP's sales are from Internet companies, only around 3% are from questionable dot-commers. In fact, the company recently signed up Oracle's application service provider business. In other words, that 80% win rate is being achieved on a high quality mix of customers which bodes well for NTAP.
Not All Rosy
While EMC and NTAP duke it out, there were some troubling metrics in NTAP's report which affect both. First, revenues from filers were down sequentially in North America. Also, accounts receivable grew 37% sequentially, well ahead of its sequential sales growth rate of 11%. It's not a good sign when a company's receivables grow faster than sales. As a result, days sales outstanding (DSO) which measures how many days worth of sales the current accounts receivable represents surged from 56 days to 70 days.
The company attributed the increase in receivables to delayed shipments in early January, making it difficult to collect before the end of the quarter. In the conference call, management indicated DSOs would be brought back down to normal levels of 50 to 60 days. On this latter point,, we'll give NTAP the benefit of the doubt but will be watching the AprQ results to ensure this is only a year-end issue.
1,000 lb. Gorilla
Regardless of what happens in the feud between EMC vs. NTAP and SAN vs. NAS, Veritas Software (VRTS) which sells software for data storage devices is blossoming into the storage software behemoth. Management is not ashamed to tell you about it either. In a recent interview, they said they are becoming the 1,000 pound gorilla in the space and they are "delivering crushing blows" to Legato (LGTO), a competitor in the space.
Remarkably, Veritas gained over 100 replacements of Legato sites in Q4 and described their rival as becoming somewhat irrelevant as Veritas is showing strength across a broad range of products, operating platforms, and geographies as they echoed the storage device makers' argument that storage is not a discretionary IT investment. Veritas does not view EMC and NTAP and the others as competitors, but more as partners. The hardware players tend to sell software that focus on their own products, whereas Veritas sells products across multiple architectures.
Conclusion
The purpose of these briefs is to discuss the storage sector generally -- who the players are, the technology etc. rather than to make specific stock picks. Once we lay out the various subgroups within storage, we'll provide our opinions on various stocks. Make no mistake that the market for storage is tremendous, but it's important to distinguish among the many players in the space. In the near future, look for additional Stock Briefs including the following topics: Components/Wiring (EMLX, BRCD, QLGC) and Storage Service Providers (STOR). See the table below for specific names in each category.
Please send any comments to rreid@briefing.com.
Storage
EMC (EMC)
IBM (IBM)
Sun Mircosystems (SUNW)
Hewlett Packard (HWP)
Compaq (CPQ)
LSI Logic (LSI)
Filing
Network Appliance (NTAP)
EMC (EMC)
Sun Microsystems (SUNW)
Dell (DELL)
Compaq (CPQ)
Procom (PRCM)
Auspex (ASPX)
Tricord (TRCD)
Wiring - Fibre Channel
Brocade (BRCD)
QLogic (QLGC - bought Ancor)
McData (MCDT)
Emulex (EMLX)
JNI Corp. (JNIC)
Gadzoox (ZOOX)
Crossroads (CRDS)
Wiring - Ethernet/SoIP
Nishan Systems (Private)
Giganet (Private - bought by Emulex)
Wiring - InfiniBrand
Intel (INTC)
QLogic (QLGC)
Crossroads (CRDS)
Storage Service Provider
StorageNetworks (STOR)
Conxion (Private)
HP Storage (HWP) |
