A group of emerging start-ups focusing in flash, software-defined storage and hyperscale markets has become acquisition targets by storage companies, many of which are losing share in a sluggish market.

Today's crop of well-financed storage start-ups includes Atlantis Computing, Nexenta, Nimble, Nimbus Data, Nutanix, Pure Storage, SolidFire and Violin Memory. As a group, these start-ups are experiencing growth while the industry as a whole stagnates.

Meanwhile, a new set of buyers—providers of storage services and other computing services such as Google, Amazon, DropBox and Box—have emerged. This new buyer set is purchasing devices from established vendors as well as the start-ups.

One way to observe the purchasing behaviour of hyperscalers is to observe trends in white box and other vendors. White Box vendor external hard disc drive (HDD) revenue is slightly over 1 per cent, while capacity is approximately 9 per cent.

This implies that a significant price discount is being given to these large buyers; however, we see it differently. These low-priced external enclosures are often delivered as minimally configured hardware, sometimes lacking covers, indicator lights and software and often not integrated with other working systems, such as filers.

We compared the price of HDDs on a per-gigabyte basis to the price for these white box systems and found that there is very little additional margin above the HDD price itself. Thus, the degree of value added to these systems is minimal: the parts have been assembled and tested, and that is all. Typically, and understandably, systems such as these command very low margins.

For example, direct-attached storage (DAS) systems, typically bought in concert with white box servers, are a very common architecture in fast-growth hyper-scale data centres. DAS units grew 16 per cent year-over-year, while networked units grew 2 per cent year-over-year. The others/white-box category experienced the most significant growth rate here, shipping 23.3 per cent of DAS units in 4Q14, up from 18.3 per cent a year ago. We attribute much of this growth to companies such as Google and Amazon.

The adoption of flash in both external and internal storage systems has been very rapid and is expected to continue (see chart above). Ten per cent of the shipped capacity of all external storage systems in 3Q14 was flash-based, either through shipment as all-flash arrays—such as EMC's ExtremIO or Violin Memory's systems—or through hybrid systems that use both HDDs and solid-state drives together.

Overall storage systems revenues declined 1 per cent year-over-year in 4Q2014 to $11.3 billion. Revenues of internal storage systems—those typically inside servers—represented 30 per cent of 4Q14 revenues and declined 8 per cent year-over-year. Revenues of external systems represented the remaining 70 per cent and grew 2 per cent. We expect 1 per cent overall revenue growth in 2015, with external systems taking modest share from internal systems.

EMC remained the revenue share leader in 4Q14 at 28.6 per cent share up by 30 basis points (bp) from the same quarter last year (see chart above). The other top five vendors lost share. HP fell to 18.2 per cent, down 50bp; IBM plummeted to 12.3 per cent, down 170bp; Dell fell to 8.5 per cent, down 50bp; and NetApp dropped to 7.1 per cent, down 20bp. There were nearly 200 storage-related start-ups in existence as of the end of 2014, many of which currently are very well funded. These vendors as a group are taking share.

By: DocMemory
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