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Western European External Disk Storage System Market Cools But Remains Strong, Says IDC

September 2011 by IDC

The overall market for external disk storage systems in Western Europe cooled in the second quarter of 2011, according to the EMEA Quarterly Disk Storage Systems Tracker from International Data Corporation (IDC). However, the fundamentals remained strong as enterprises continued to spend massively on storage in order to cope with the challenges of data growth, server virtualization, and data protection, while drastically reducing ongoing storage-related costs by improving the economics of storage. To that end, storage buyers are increasingly looking for platforms that are quick to deploy and easy to manage.

IDC reported that external disk storage systems (EDSS) factory revenues in Western Europe grew 6% over last year to $1.27 billion in the second quarter, showing an atypical seasonal decline of 5% over the first quarter in dollar terms. The quarter-to-quarter decline can largely be explained by the closure of some huge deals registered in the first quarter of the year, as well as strong post-crisis spending as enterprises upgraded their data storage infrastructure. However, dollar revenues were substantially inflated by a weakening dollar, and market demand actually declined 6% YoY and 10% QoQ on a constant currency basis.

High-End Deployments Drive the Market

"Enterprises continued to spend even more on high-end systems as they refreshed their aging mission-critical systems, deployed new platforms to drive enterprisewide consolidation projects, and enhanced disaster recovery plans," said Donna Taylor, research director for IDC’s European Storage Group. IDC saw growing underlying demand for high-end disk storage platforms virtually across all markets in Western Europe, despite economic concerns and underperforming peripheral European economies.

Driven by very large deployments, enterprises spent 18% more dollars on systems priced $250,000 or above compared with last year, out of which traditional mission-critical systems such as EMC’s Symmetrix, HDS’ VSP, HP XP, and IBM’s DS8000 family registered over 14% dollar value growth. This growth is all the more impressive when compared with the already high base set in the second quarter of 2010.

Demand for overall midrange configurations (priced between $25,000 and $250,000) experienced a decline as demand shifted to higher-end and lower midrange products, indicating polarization in the marketplace. While the total midrange category declined 3% over last year, sales of systems priced between $25,000 and $50,000 were 18% higher in the second quarter than a year before, as demand for upper midrange disk storage between $100,000 and $250,000 fell 31% over the period.

Entry-level disk storage systems performed well, especially in the sweet spot of a $10,000 selling price. While the sub-$25,000 category generated 12% more dollar revenue, systems between $5,000 and $15,000 grew 25% year over year.

Top Vendor Highlights

EMC and NetApp continued to dominate the EMEA storage marketplace and even managed to charge farther ahead of the pack. HP, IBM, and Dell all underperformed both the market leaders and their own performance a year earlier, with HDS the exception.

EMC managed to extend its lead over NetApp both on a yearly and quarterly basis. EMC did especially well in the high-end market segment (systems selling for $250,000 or more), as enterprises demanded even more performance and capacity with high availability and enhanced data protection and security features.

Although NetApp registered lower overall growth rates than EMC, the company’s fundamentals in Western Europe are still extremely strong. The yearly comparison is distorted by some huge deals the company registered over the same period last year, as well as the recovery of the market post-crisis. NetApp also had an unusually strong first quarter this year, which made quarter-to-quarter comparisons more difficult. NetApp did an especially outstanding job in the midrange price bands, winning further market share over its competitors in big chunks.

HP and IBM, in third and fourth place respectively, were rather flat compared with a year earlier, despite the positive currency impact, and lost market share. Simply put, growth products were more than offset by declining legacy platforms, as sales of HP’s EVA and the IBM DS8000 family tanked. On the brighter side, HP successfully ramped up 3PAR sales, edged up Lefthand, and reaped benefits with P9500 mission-critical systems. IBM earned success with the midrange Storwize V7000 and is well positioned to expand its higher-end XIV business with the next release of the platform.

Meanwhile, Dell is temporarily battling the effects of its own decision to back off from reselling EMC systems. The strategic move will likely pay dividends in the future. However, the company has lost a lot of footprint for the moment as the Equallogic business only improved mildly, and Compellent sales were sporadic and contributed little. As a result, Dell registered mid-teen declines and lost its fifth place.

The big winner of the quarter is once again Hitachi Data Systems, with the ongoing success of the high-end Virtual Storage Platform. "HDS’ expansive strategy, its reputation for high quality and service standards, and the technical appeal of the VSP propelled the company’s sales," said Daniel Bizo, research analyst at IDC’s European Storage Group. The company’s sales skyrocketed by over 50% year over year, earning it the fourth place market share position. HDS poses a serious challenge to IBM and EMC in the mission-critical storage space. When combined with HP’s XP family sales (with the systems supplied by Hitachi under an OEM agreement with HP), Hitachi’s technology was the number 1 choice of Western European enterprises for mission-critical storage systems.

Country Highlights

Despite the weakness in the dollar, the EDSS market in the U.K., Germany, and Italy remained flat year over year compared with 2Q10 and declined single-digit seasonally. However, IDC believes this is not a sign of weakness in the underlying demand, nor is it connected to the eurozone sovereign debt crisis. Instead, it is a product of a high base in both the second quarter last year and the first quarter this year. Sales of high-end systems, for example, grew in virtually every country if we exclude a single, but significant, NetApp deal last year.

Among the major markets, France, the Nordics, and Switzerland did especially well. The increase can largely be explained by currency impacts, but France performed very strongly across all price bands, while the Nordics and Switzerland had real strength in high-end and lower midrange systems. The PIGS markets (Portugal, Ireland, Greece, and Spain) continued to suffer under the burden of the sovereign debt crisis as these economies depend greatly on the public sector and a few larger enterprises, which cut back not only their IT capital layouts but also their spending on other goods and services, thereby crippling local suppliers.

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