Where Does NetApp Stand In A Slowing Storage Systems Market?
Most large storage systems manufacturers have had a tough year, with product hardware sales falling compared to previous year levels. Low demand for storage hardware coupled with falling prices has primarily driven the decline this year. Global spending on conventional external storage arrays has continued to decline – a trend consistent over the last few years. Comparatively, demand for all-flash storage products was up during the September quarter, in line with industry trends over the past couple of years. Dell-EMC, NetApp (NASDAQ:NTAP), IBM (NYSE:IBM) and Hewlett-Packard Enterprise (NYSE:HPE) have had a tough year in terms of storage hardware product sales, with revenues falling compared to the previous year period.
According to IDC’s latest report, Dell-EMC, NetApp, IBM and HPE reported revenue declines in the high single digits to the mid-teens through the September quarter, as shown in the table below. [1] Comparatively, sales of vendors outside the top five were up by over 9% y-o-y to $1.60 billion. The industry wide decline in external storage systems stood at 6% to $5.45 billion.
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A key point to note is that the previous year figures for Dell-EMC include the combined figures of Dell and EMC – which were separate at the time – while Q3 figures for this year include revenues combined revenues after the merger. Additionally, Hitachi Data Systems observed 9% growth in external storage systems revenues to $493 million during the quarter, presumably due to a strong data-driven storage portfolio coupled with major flash-storage product releases this year. [2] [3] A similar trend was observed in the year-to-date figures through the three quarters of 2016 thus far.
According to data compiled by IDC quarterly reports, global factory revenues for storage systems declined by over 2% year-on-year to $24.1 billion in 2015. The trend has continued in 2016 thus far, with industry-wide revenues of external storage systems falling by over 3% to $16.5 billion through the first three quarters of 2016. As customer preferences are shifting to low-cost original design manufacturer (ODM) storage boxes, the demand is cutting into the addressable market for large vendors. [4] This has impacted large storage systems vendors, leading to revenue declines. Despite the decline in global factory revenues this year, smaller vendors have witnessed growth. The combined revenues generated by companies outside the top five vendors saw an almost 8% increase in 2016 thus far. This figure stood at 11% and 8% for 2014 and 2015, respectively, while industry-wide revenue growth stood at 0% and -2% for 2014 and 2015, respectively.
In terms of market share, NetApp’s share in the external storage systems market fell from 11.1% in 2015 (11.3% in Q3’15) to under 11% for the September quarter. However, NetApp’s year-to-date share in the market currently stands at around prior year levels of 11.1%.
Despite the revenue decline, NetApp has successfully defended its market share in this domain in a tough-selling environment. NetApp improved its flash storage portfolio and reportedly observed strong demand for its all-flash array storage product lines. Last year, NetApp announced the release of its sub $25k AFF8000 all-flash array in an attempt to compete with smaller flash array players such as Pure Storage, Violin Memory and Nimbus Data. [5] NetApp witnessed 240% growth in its all-flash array revenues in early 2016, which was almost 3 times higher than the industry-wide growth. [6] Over the long run we forecast NetApp’s market share to improve to over 11.5% as the company continues to improve its product portfolio.
Going forward, a key challenge for NetApp will be competing with significantly larger competitors given that Dell acquired EMC. Among the top five large storage vendors, NetApp is now the only company that is primarily a storage systems manufacturer. It now competes with IT behemoths such as HPE, IBM and Dell with much deeper pockets, widely spread sales channels, massive customer bases and the ability to integrate storage products across various verticals such as servers and other IT hardware. In this scenario, it is imperative to compete directly with smaller vendors and flash-storage startups to stay relevant in this changing industry.
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- Worldwide Quarterly Disk Storage Systems Tracker Q3 2016, IDC Press Release, December 2016 [↩]
- Hitachi Data Systems Introduces New, Enhanced Flash Storage Lineup, Hitachi Data Systems Press Release, October 2016 [↩]
- Hitachi Data Systems Announces New Converged and Hyperconverged Solutions for Virtualization and Cloud Environments, Hitachi Data Systems Press Release, June 2016 [↩]
- The Rise Of White-Box Storage, Network Computing, August 2014 [↩]
- NetApp Targets EMC, HP, Startups With New $25K All-Flash Storage Line Part 1, CRN, June 2015 [↩]
- NetApp Ranked #2 in Worldwide All Flash Array Market Share for Q1 2016, NetApp Press Release, June 2016 [↩]