IBM currently OEMs disk arrays made by Engenio, and has been Engenio’s largest customer for the last two to three years. In the first quarter this year, Engenio said IBM accounted for 51% of its revenue.

But over the next 12 to 18 months that revenue could fall heavily, because on Tuesday IBM will launch its own disk array that will compete with the Engenio boxes that it OEMs from Engenio.

The new IBM device is called the TotalStorage DS6000, and it is targeted at the same mid-range sector as Engenio’s arrays. Although IBM’s product portfolio will continue to include Engenio-made arrays, Big Blue’s mid-range sales focus will switch to its own DS6000 controller architecture.

The first versions of the DS6000 may not overlap greatly with the re-branded IBM DS4000s that are made by Engenio, but the DS6000 is sure to be expanded down-market, sources said.

This is definitely not good news for Engenio. There will be a natural evolution to the new IBM hardware, and Engenio’s sales will fade. There’s a large installed base, but sales are going to diminish pretty rapidly over the next twelve months, said one source that did not wish to be named.

Engenio was formerly known as LSI Logic Storage Systems Inc, and was renamed in May in preparation for a stock market floatation by its parent company LSI Logic Corp. That IPO was initially slated for the first half of this year, but was put on hold indefinitely this summer, when LSI blamed market conditions.

Since it launched its current range of mid-range disk arrays in 2001, Engenio has been selling them very successfully to IBM and its other OEM partners, who are Storage Technology Corp, SGI, and NCR Corp’s Teradata division. The devices are well regarded by analysts, and the company’s revenue grew 27% to $427 million last year, heavily outpacing what IDC estimated was 2% growth in overall external disk market revenue.

But Engenio has been unable to deal with its over-reliance on IBM. In 2002 it attempted to partly rectify the situation by entering a deal with Storage Technology Corp, under which StorageTek now co-brands Engenio’s arrays. The deal was hoped to exploit StorageTek’s dealer network in order to raise Engenio’s non-OEM sales. However IBM’s share of Engenio’s revenue back then was around 40%, and it has since climbed.

The disk market is consolidating around the top five OEMs, all of which have their own mid-range hardware to offer – excepting Dell, which is successfully reselling EMC’s hardware. One source said Sun Microsystems Inc is negotiating an OEM deal with Engenio. If so, this would have a knock-on effect on Sun’s current OEM supplier Dothill Systems Inc, but would only be a minor consolation for Engenio. Sun’s small share of the disk market has been steadily shrinking.

The DS6000 will be similar to IBM’s flagship Shark ESS array, and will be able to replicate data to the current Shark, sources said, but it will not feature the same architecture.

It will be a 3U high box supporting both mainframe and Open Systems servers, and will scale to 67TB – slightly larger than the current smallest Shark. But it will feature a different controller and operating system, and sources said that IBM will next week emphasize the low cost of the DS6000. A 5TB configuration of the device will list at around $75,000, making it cheaper than the EMC Corp Clariion CX500s and CX700s that it was designed to compete with.

IBM last month abandoned the FastT name it had been using for its re-branded Engenio boxes, and renamed them as DS4000s. The giant described the move as part of an effort to streamline the naming of its entire disk line up, but it may have been an auger for plans to distance itself from LSI and the FastT brand.

IBM, Sun and Engenio declined to comment on this story.