SANs Are the Clouds with the Golden Lining

On April 16, Sun Microsystems' chairman, president, and CEO, Scott McNealy, said, "Storage isn't an industry; it's a feature of the server." But for EMC and Data General, storage is an industry—and an incredibly successful one. When you realize that 50 percent of the investment that an enterprise makes in infrastructure is in storage (some analysts peg the amount at as much as 70 percent), you begin to understand this business opportunity's magnitude. E-commerce, data warehousing, data mining, multimedia, and online transaction processing (OLTP) are rapidly consuming storage resources and taxing enterprise networks. These technologies are also fueling an interest in developing Storage Area Network (SAN) technology that consolidates and manages data and offloads network traffic to a network subsystem.

The emergence of fibre channel technology is making SANs a lot easier to implement, thereby bringing several new players into the marketplace with offerings such as disk subsystems, switches, interconnects, backup and retrieval systems, CD-ROM libraries, and tape systems. For vendors, SANs are the clouds with the golden lining—the SAN market will grow from about $4 billion in 1998 to $17 billion worldwide in 2000, according to Strategic Research. International Data Corporation (IDC) projects the overall storage market to reach $50 billion in 2002 and the SAN market to reach $11 billion in 2003.

But the future of SANs and the development of fibre channel standards are inexorably linked because fibre channel greatly expands the connectivity of SANs and enables remote distribution. Three bodies that set the fibre channel standards at the moment are the EMC-led FibreAlliance, the Storage Networking Industry Association (SNIA), and the Internet Engineering Task Force (IETF), which ultimately decides what standards to adopt. The future of SANs depends on these bodies.

EMC Is Storage Leader
EMC's compilation of Dataquest and GartnerGroup studies concludes that EMC's external RAID market share for 1998 was 35 percent, compared with 22 percent for IBM, 9 percent for Compaq, 6 percent for Sun, 7 percent for Hitachi Data Systems, 6 percent for HP, and the remaining 15 percent for miscellaneous vendors. EMC has become the dominant player in the mainframe data storage market by offering storage systems that connect to a mainframe, minicomputer, or server. (EMC's Connectrix storage systems and software have turned EMC's open storage products into the Switzerland of the data center. Some 30,000 Symmetrix systems installed worldwide amount to about 3000 MIPS of processing power.) EMC's market performance has kept EMC stock on most market analysts' "buy" list for several years. As the dominant player in the RAID market, EMC is poised to lead the SAN market.

In recent years, EMC replaced IBM as the largest vendor of enterprise-class storage. In 1998, EMC made $3 billion of the $10 billion revenue earned in the mainframe storage market and held 51 percent of the enterprise-storage market share. In comparison, IBM held 27.4 percent of the market share, Hitachi had 18.1 percent, and Amdahl had 3.5 percent, according to IDC. Although mainframe storage is a stable market, it isn't a growth market, and some EMC players believe that Windows 2000 (Win2K) will be a major player in the data center market and account for 50 percent of all new deployments in the next few years, which will be primarily in the midrange storage market.

EMC is a widely admired company that customers describe as responsive and customer-connected. EMC has quality products and is loaded with Digital Equipment, Wang Laboratories, Prime Computer, and Data General refugees who've been through the wars. EMC employees are sales and marketing animals who know their customers and provide premium service at a high price. (A typical EMC system runs from $250,000 to $4 million. And often, when a company purchases an EMC Connectrix system, the system will cost more than the building the system goes into.)

But EMC has a tiger by the tail. EMC's flagship product is a large cabinet filled with just a bunch of disks (JBODs) configured as a RAID array using industry-standard connections. With EMC using the open-storage model, lower-priced offerings will put enormous pressure on EMC's business in the future. EMC has already felt pressure in the high-end market. For several years, HP resold EMC Symmetrix arrays, which accounted for $750 million in EMC sales. But in July, HP cut a deal with Hitachi Data Systems. HP will sell Hitachi Data Systems storage arrays instead of EMC storage arrays because each Hitachi Data Systems sale will give HP a better margin. EMC is aggressively pursuing HP enterprise storage customers, and early indications suggest that EMC will retain about 60 percent of HP customers. EMC will sustain a loss—although not a major loss—from HP's deal with Hitachi Data Systems.

EMC Acquires Data General
Data General is a company with a presence and products in the same SANs arena that Win2K will play in. At a May press and analyst briefing at Data General's corporate headquarters, the big news was that Data General is making a $100 million investment in the company's CLARiiON storage division to develop a full line of fibre channel devices for Windows NT and UNIX. The CLARiiON product line accounts for nearly 25 percent of Data General's overall business. Data General has unique fibre channel products for building SANs, particularly using midrange systems. The company also revealed the roadmap to introduce its fibre channel SANbackup, storage arrays, and other fibre channel products.

EMC acquired Data General on August 9 with a $1.1 billion stock trade. This agreement will benefit both companies and will further strengthen EMC's leadership in SANs and its competitive position for the future. Instantly, EMC will obtain Data General's position in midrange systems, Data General's OEM agreements for CLARiiON products with companies such as Dell, and Data General's connections to Value Added Resellers (VARs) who sell to the midrange market segment.

EMC President and CEO Michael Ruettgers said, "This acquisition delivers on our long-stated objective of constantly expanding our market opportunities. Data General's products have proven technology leadership in the midrange storage market, particularly \[in the\] Windows NT and UNIX environments, but have lacked the global distribution and support needed to achieve their full market potential." Ruettgers continued, "Data General's storage products provide an excellent complement to our high-end Symmetrix Enterprise Storage family."

This acquisition will make EMC more competitive in the SAN market, especially in the deployment of storage systems on PC servers, which many analysts see as a major growth area for data centers. The move lessens EMC's vulnerability in the midrange market because it gives the company solid products to sell and provides the NT expertise of Data General's staff. Data General benefits because the acquisition gives the company access to EMC's worldwide sales force and a better distribution system.

Although EMC will integrate the Data General storage products into its own product line, Data General's server business will continue to operate as an independent unit within EMC. Data General's AViiON server business will continue to be a desirable option for companies interested in Non-Uniform Memory Access (NUMA) architecture, enterprise NT solutions, and health care solutions. EMC might leverage the AViiON technology to provide a complete front-end server and back-end storage solution. EMC also plans to integrate aspects of Data General's Intel systems and high-performance OS technologies to create network-attached storage products.

EMC acquired Data General for its storage products, rather than for its computer systems design. Yet, EMC's track record gives the distinct feeling that the company will obtain tremendous value from Data General's CLARiiON products as a front end to EMC enterprise-storage products.

Other SAN Players
The SAN market is an area rife with new players and new products. IBM announced its SAN strategy in February and has had multiple SAN-related product announcements since then. Storage has long been a major part of IBM's business; when you bought an IBM mainframe, you bought IBM storage. IBM hasn't given up on the enterprise-storage market, which the company invested years to create. In August, IBM's Storage Systems Division announced the future production of its Enterprise Storage Server (ESS—code-named Shark). ESS will probably spell the end of IBM's alliance with StorageTek, the OEM supplier of IBM's RAMAC Virtual Array, which ESS replaces. When ESS ships this fall, it will be the cornerstone of IBM's enterprise-storage line and the Seascape storage enterprise architecture. As EMC players point out, ESS doesn't have fibre channel connectivity yet, although it will next year—at which point EMC will face a strong competitor.

With the growing interest in NT enterprise solutions, both Dell and Compaq have begun to target the storage market. Given the razor-thin profit margins on servers, storage offers much better opportunities for profit growth. Dell inked a deal with Data General this past year to sell CLARiiON products as part of Dell's PowerVault line, and Compaq has similar offerings.

Data General and Dell use SCSI and short-distance fibre channel to connect their products, and both companies have an active interest in Future I/O and Next Generation I/O (NGIO) interconnect technologies. Later this year, Dell will introduce long-distance fibre channel interconnect technology to the company's storage line. Kevin Reinis, the general manager of Dell's Storage Systems Division, said his mandate for storage was to take the Dell server business model (i.e., direct sales) and "do it again." Dell also wants to take the low-end market for SANs away from EMC, just as EMC took the enterprise storage market away from IBM.

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