By Sonia R. Lelii
Despite a recent rash of revenue warnings from storage vendors, a majority of distributors, resellers, and integrators still remain bullish on the overall spending pipeline and revenue outlook for 2004, according to a July report from Thomas Weisel Partners, a financial analyst firm.
According to the firm's survey of 30 distributors, resellers, and integrators, 45% of the respondents experienced sales in the second quarter of 2004 that were ahead of their expectations (compared to 35% in the first quarter). At the same time, 24% said that Q2 sales were below expectations, and 31% found sales to be in line with expectations.
On an even more positive note, 73% of the respondents said their Q2 2004 sales were tracking ahead of Q2 2003. Only 7% reported sales that were behind last year's quarter and 20% reported sales that were on par with last year's Q2 revenues.
Moreover, 47% of the channel respondents said that Q2 2004 sales were up versus the previous quarter, while 26% reported lower sales and 27% had Q2 sales that were approximately equal to Q1 sales.
"We continue to feel the channel is developing more realistic and accurate expectations as only 24% of respondents are tracking below their internal expectations [versus 29% and 43% in Q1 2004 and Q4 2003, respectively]," according to the report, TWP Storage Tracker 2Q04.
When the storage channel vendors were asked how they felt about 12-month storage spending prospects, 73% reported they were feeling better than three months ago and 27% said they felt about the same as three months ago. None of the respondents said that 12-month storage spending prospects are worse now than they were three months ago.
The upbeat report from the channel comes despite recent pre-announcements on earnings that hammered storage vendors over the past month. Eight storage vendors warned of earnings shortfalls, most notably Veritas Software. Quantum and StorageTek both identified "increased tape competition" as the thorn in their sides, while Emulex cited weak demand for host bus adapters (HBA) as the primary reason for its earnings shortfall.
"We were somewhat surprised with this quarter's positive survey results, which suggest continued healthy trends for storage spending, in light of the multiple pre-announcements in the sector,'' according to the report's authors. "To explain this disconnect, we observed that our survey reflects overall channel sales and that channel sales are still dominated by disk subsystems."
In other words, the financial firm concluded that its tracker may not have detected specific pockets of weakness, such as the HBA, tape, and backup software markets.
More important, SAN infrastructure spending may have slowed down due to an end-user digestion period after several years of aggressive deployment.
One key point: the TWP Storage Tracker calculates that for every $1 worth of storage gear sold by the channel, an estimated 80 cents comes from sales of disk subsystems. This may mean that a healthy quarter of disk subsystem sales could "mask weak demand in relatively small sub-sectors such as HBAs, backup software, and tape," according to the report.
"We think the market may have entered a period of temporary spending divergence," according to Thomas Weisel analysts. "Over the past few years, end users have spent aggressively on deploying SANs to increase storage utilization rates. Now that utilization has gone up, and the low-hanging fruit is gone, we think the SAN infrastructure market may be going through a pause in spending as end users digest their purchases."