SSB Storage Industry Conference
By Sean Donovan
Cautiously Optimistic
community.metamarkets.com
Dave is off at E3, playing video games and oggling Asian women in superhero outfits. What a tough life! For me, however, I get to watch PowerPoint presentations and listen to CFO's talk about the benefits of NAS over SAN. Solomon Smith Barney held a conference on the storage sector yesterday and the day before. I was there, and I wish I had better news. In the end, I felt that all I really got out of the day was an understanding of what these companies do. In the end, nobody knows when business is going to turn around. Still, I must admit that most presentations could be described as cautiously optimistic.
The conference was held at at the Roosevelt Hotel in glorious NYC. The Grand Ballroom is where most of the big names presented. I went in with hopes, hopes that there would be some optimism I could latch hold of. After all, it is the storage sector that most analyst say is recession resistant. Sadly it is not recession proof. And that was evident at the conference. There was a lot of talk about iSCSI, a new protocol for moving stored data over IP, but the consensus was that there wouldn't be any kind of volume ramp for at least a year. The tone is best described as cautiously optimistic, with expectations for the future.
QLGC
Tom Anderson, VP & CFO, was the second speaker in the Grand Ballroom. I had missed the IBM presentation, my taxi was stuck in traffic. Mr. Anderson gave a good presentation, though he was somewhat at a loss when asked about how the company would address its customer concentration.
When I think of QLogic, I think of Emulex, and vice versa. These companies aren't the same, though they live in the same neighborhood. And that's why QLGC trades at 45x FPE, and EMLX at 70x. In the end, QLogic is both more diversified, and also more focused.
Many companies have customers that represent more than 10% of their revenues. But not every company has one customer that represents 29%. QLogic does, Fujitsu. And that may be one reason why investors treat this stock differently than its peers. Second in line is Sun Microsystems, with 18%. But QLogic sells more SCSI products to Fujistu than fiber channel switches. And the company expects slowing sales in SCSI and rising sales in FC, so we might see a little bit of a shift there. Unfortunately, Sun mostly buys their FC products, so we might just see a shift in concentration from Fujitsu to Sun. And that might not be much better.
BRCD
Newly appointed President and long time COO, Michael Byrd, spoke with the dignity and poise worthy of a president. From the image he presented, the corporate culture at Brocade seems more conservative than your typical Internet startup.Accordingly, his presentation was informative, and somewhat optimistic.
Mr. Byrd's confidence is founded, at least as they see it. The company claims 60% market share in SAN networking. Despite the downturn, the company is currently maintaining gross margins, and increasing R&D. And if you believe the company's claims, they are out-researching their nearest competition by more than 100%.
But more than that, Mr. Byrd made cautiously optimistic comments about the future, with of course the mandatory safe harbor announcement. According to a recent 3rd party survey of IT managers, 68% of them are planning to implement SAN at some level in their organization. Further, the company is seeing anecdotal evidence that certain storage projects are getting done. Specifically, the kinds of projects that pay for themselves (those with good ROI). More sales deals are looking to get closed, and the size of the deals are getting larger. Granted, this is pretty anecdotal evidence, and the company refused to get any more specific, but Brocade management thinks it will meet the streets expectations. And that sounds good to me.
Lunch with IDC
You hear so much about IDC's predictions of market value in the future, but do you ever actually get to see these people? I used to think it was like Clark Kent and Superman. You never saw both of them in the same room at the same time. Or maybe they were just a myth. Well, I can assure you that IDC is real, and the people who work there have their s#@! together. A guy named John McArthur is their VP of Worldwide Storage Research. And if there's one thing I can say for the guy, he speaks well. I believed every word he said, whether it was true or not. But all kidding aside, he was able to convince me and every one in the Terrace Room that all the fundamentals of storage is in tact, despite the speedbump we are currently negotiating.
IDC has been saying for a while now that the storage industry (that is not to say the amount of actual storage, which will grow faster) "will grow at double-digit levels. According to IDC, worldwide revenues in this market will increase at a compound annual growth rate of 12%, to $53.3 billion in 2004 from $28.4 billion in 1999." Furthermore, by 2004, the market for NAS and SAN will be about the same size. OK, so maybe this year won't grow 12% over last (it was a phenomenal year after all), but Mr. McArthur did claim that the 5-year trend is in tact.
The keys to success, he contended were essentially 3-fold (though it is nearly blasphemy to simplify it so 1) open frameworks; 2) embedded; and 3) targeted. And, unlike a brokerage analyst, he was willing to talk about specific companies. Those mentioned were mostly companies that make storage management software. They were TekTools, Prisa Networks (they reduce the cost of IT staff), Fujitsu Softek (open framework, platform agnostic), Falconstar (has an OEM model), and Backbone Software (focused on embedded). Whereas I do think he liked these companies from a technology perspective, I am certain that he was not recommending stocks. Like Gilder is to telecom, this guy is to storage.
In short, the outlook is great for fiber channel. The adoption rate is ramping. And even if iSCSI does takes, which Mr. McArthur believes it will, FC will be the sweet spot for the next 5 years. Right now, it is too early to say what will happen with iSCSI. There is no real leader because there really is no product yet. iSCSI is not a market, it's an innovation.
More later, in another, more easily digestible post
====
Sean Donovan
MetaMarkets.com |
