Storage unaffected by slow economy

Some observers remain quick to declare that the sky is falling in the storage market. But they just might be wrong.

So are we headed for a recession or not?

Even those with the most reliable crystal balls are hard-pressed these days to make predictions about the country’s economic future. About all anyone can agree with is that, yes, the economy has slowed down and, yes, corporate profit margins—including those among IT hardware and software vendors—are getting squeezed. And yes, the dot-com shakeout among the haves and have-nots (as in those that have a sustainable business plan and those that never did) will continue.

Questions and uncertainties about the economy have spilled over into the annual debate on corporate IT spending for the coming year. Opinions vary, but the general consensus is that IT spending will rise, though only modestly. One survey by Morgan Stanley Dean Witter pegged an 8 percent increase this year, compared to an average of 12 percent last year. Sixteen percent of respondents, however, said IT investments would actually decrease. Given this spending slowdown, enterprise IT managers are under increased pressure to show true value and a healthy return on investment in their technology projects. Some observers, correctly, see surveys like this one as a bad omen for PC vendors still reeling from disappointing holiday sales.

But that logic only goes so far. Some Cassandras are trying to cover every class of technology vendor under this gloomy umbrella, saying the slowdown will hit all IT areas across the board. It’s true the current climate might force an IT manager to put the brakes on a company-wide PC upgrade, a wireless project, or an e-marketplace initiative. But technology has become such an integral part of business that companies can only close the corporate purse strings so much.

Spending in one area in particular--storage--shows no signs of slowing down. In fact, just the opposite is happening. Companies hip-deep in e-commerce or business-to-business projects—whatever stage they’re in—are still generating reams of data that have to be stored somewhere. What’s more, vendors know their customers are crying out for more effective ways to manage their storage environments, whether it involves employing a storage service provider, network-attached storage devices, and/or a full-on storage-area network. And countless customer surveys conducted by the many storage-hardware vendors, including market-leader EMC, show that storage spending is still a top priority (particularly Windows NT-based storage).

These facts notwithstanding, some observers still have been quick to declare that the sky is falling in the storage market. Investment firm Robertson Stephens, for example, earlier this month reduced its ratings for EMC, Network Appliance (the leading midrange storage vendor), and VERITAS Software (the leading storage-management software maker). The investment firm said corporations would be cutting back on storage (and security) software spending, mirroring the general slowdown in overall IT spending.

The result was predictable: Stock prices for those vendors and others in the storage field went south and were saved only by Federal Reserve Board Chairman Alan Greenspan’s decision to cut lending rates by half a percentage point. Merrill Lynch released a report saying the storage sector was poised for strong growth, even if other technology sectors were not. Adding emphasis to that point, EMC went on to announce record revenue growth for the fourth quarter and for the year.

Lumping the growth potential of the storage market together with that of other sectors indicates a totally unrealistic view of the state of technology in business. Storage spending is no longer a yes/no proposition for corporate customers. It is nondiscretionary, and not just because of the skyrocketing amount of data that is being generated among enterprise customers.

Building and managing a secure storage environment--or subscribing to a reputable storage service--is essential for corporations to achieve whatever e-business projects are on the table—from ensuring access to files and data throughout an organization to storing and mining customer data from a transaction-based e-commerce site. Storage is a critical part of a bulletproof e-business infrastructure. Just because some high-profile dot-coms have failed, and PC spending has slowed, doesn’t make that fact any less relevant.

IT managers may have less cash to work with in the coming year. But storage vendors are in a strong position--perhaps stronger than any other class of vendor--to demonstrate their value and convince enterprise customers to sign on the dotted line.