Data General’s Clariion storage division has built an impressive market presence since the then struggling Massachusetts-based minicomputer company diversified into enterprise storage systems for high-end Unix servers in 1992. At the end of Data General’s fiscal year last September 1997, Clariion’s contribution to company revenues passed the landmark figure of half a billion dollars, making up a third of the $1.5bn total. That total was itself a new all-time high for Data General as it finally passed the peak revenues it posted at the end of its minicomputer heyday a decade ago. But after technology and customer setbacks in the second half of 1997, Clariion’s rapid growth appeared to stumble to a halt in the first quarter of the current financial year, raising questions about DG’s ability to sustain its success against intense competition. Anders Lofgren, storage analyst with Cambridge, Massachusetts-based industry watcher Giga Information Group, estimates Clariion’s revenues in the first quarter 1998 (ended December) were $104m, down one sixth from $124m in the preceding quarter, and barely changed compared to the same quarter a year ago. (Data General does not break out Clariion revenues).
By Phil Wainewright
DG’s executives claim this is just a temporary bump in the road of growth, and point to a contract to supply storage arrays to leading PC manufacturer Dell Computer as a sign of its vigour. But it is not enough to shake off the impression that Clariion has entered more turbulent times than it has been used to in its hitherto charmed existence. When Clariion started out five years ago, it was one of a small group of specialists building Raid arrays for the top end of the open systems storage market. This early technology edge helped DG sign significant contracts to supply arrays to companies such as Hewlett-Packard, Silicon Graphics and NEC. Today, Clariion is feeling the pressure from competitors in a much more broadly-based market. Big contracts to supply computer companies – rather than end users – have helped it to achieve rapid growth, but revenues could prove vulnerable if these customers decide to switch suppliers. Margins are also under pressure, particularly as the Windows NT environment gains ground in the open systems market, bringing with it lower prices. At the same time, Raid has been joining the mainstream, eroding the value of Clariion’s specialization in the technology. Certainly, a slowdown is evident. The company’s fourth quarter sales were up 52% on the previous year, and the figure for the year as a whole was up 40% on 1996, according to Clariion. But 1996 revenues had shown a 90% increase on 1995. It was against this background that Ron Skates, Data General’s president and CEO, revealed that worse news was in store in the first quarter of 1998. Skates blames difficulties in making the transition to fiber channel technologies on the part of Clariion’s customers and suppliers, adding that product gross margins had also been weaker than expected.
Strategic bet
A year ago, Clariion had staked what director of marketing Peter Gibbs admits was a very big strategic bet on fibre channel interconnect technology. This meant DG did not update its SCSI- based disk arrays to take advantage of faster Ultra SCSI technologies emerging at the time. Instead, it launched its next- generation FC5000 series family of disk arrays as a wholly fibre channel-based product line. It also introduced a fibre channel attachment upgrade for its existing top-of-the-range, SCSI-based FC3000 series. DG’s strategy depended on two assumptions; first, that customers were ready to move to fibre channel; and second, that suppliers were ready to ship all of the sophisticated component technologies – such as host adapters, hubs and switches – required for high-end installations. Both proved incorrect. It’s been a struggle and late coming to fruition, Gibbs concedes. But this does not undermine the fact that DG is well established in the storage market with proven technology. Skates, issuing a warning that the impact on revenues would continue through the second quarter, described the outlook for Clariion as positive. If his analysis that the sales slowdown is entirely due to the fibre channel issue is correct, then his optimism may prove valid. But other factors may also be having effects that have longer-term implications. The chief threat comes from near neighbor EMC, which has been heavily marketing its own products to Clariion’s OEM customers. Although Hewlett-Packard is still buying Clariion arrays, EMC’s share of the RAID business has grown. In February this year EMC signed a three-year agreement with one of Clariion’s flagship customers, Silicon Graphics. Data General executives argue that events will vindicate Clariion’s decision to commit early to fibre channel, and its new contract to supply Dell Computer is the first endorsement of that view. If that is the case, its early lead in the technology could prove key; but it faces a nervous year as it waits for fibre channel to gain market acceptance – and there is even a small but lingering fear that it may not catch on at all.
Computer Business Review.
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