Storage firms Brocade and EMC have issued profit warnings.
Brocade, the leading manufacturer of fiber channel switches, beat analysts’ forecasts when it announced its results for the last three months of 2000. However, it also downgraded its 2001 forecasts, stating that growth will slow down this quarter. As a result, Brocade’s shares fell by 25% during trading on Thursday. Similarly, the world’s largest supplier of enterprise storage, EMC, downgraded its revenue growth estimate for 2001 from 35-38% to 25-35%. Its shares were down by 12% at the close of business on Thursday.
For a while, it looked like storage firms were immune to the technology stocks decline. The development of eBusiness, especially in dotcoms, had led to an exponential growth in data storage demand and hence the storage market. Finally, the problems elsewhere seem to have caught up with them.
However, the corrections don’t necessarily mean the good years for storage are over. The demand for storage will weaken in the near future, in part due to the dotcom shakeout, but there remains a strong underlying need for storage driven by the unstoppable advance of eBusiness. The slowdown is definitely in the short term; long-term prospects remain largely unchanged. Datamonitor projects that the growth in the storage area networking market, a key growth area of the storage market, will be over 55% per year over the next five years.
In the face of this temporary slowdown one main threat to the market comes from accelerated price erosion brought about by the possible oversupply in the short-term. Consequently, storage vendors will have to carefully consider any changes to their pricing before they implement them.
The underlying factors that create the demand for the storage market have not gone away. Enterprises will need storage whatever the market conditions. The main uncertainty is whether enterprises will try to build their storage systems on a tight budget or whether they will delay their investment.
