Data firms face fight from flash start-ups

SAN FRANCISCO — As storage rivals EMC, Hewlett-Packard and Symantec grapple with the idea of breakups poised to make them into smaller companies, they will need to contend with a new generation of businesses that are offering faster and cheaper systems for housing digital data.

The threat posed in the US$65 billion (S$82.4 billion) market by these companies — with names such as Pure Storage, Tegile Systems and Nimble Storage — helps explain why EMC is contemplating a breakup or merger and adds to the pressures leading Hewlett-Packard and Symantec to plan splitting themselves up.

The younger companies’ products based on flash memory, named for its ability to rapidly access data, are growing far faster than traditional systems based on hard disks.

Demand is plummeting for the pricey machines based on older technology that EMC once relied on to fuel profit and sales.

High-end storage revenue dropped 14 per cent in the second quarter, the company said in July. Putting it mildly, EMC’s Mr David Goulden, who oversees the storage unit, at the time said EMC’s high-end business was “in transition”.

Meanwhile, EMC’s sales from newer types of storage technology surged 52 per cent.

“We’re turning storage into a world that, instead of being dominated by these big flashy boxes, is a thing that’s going to graduate more towards software running on commodity hardware,” said Mr Henry Baltazar, an analyst at Forrester Research.

Against this backdrop, EMC has been evaluating options, including holding talks to merge with Hewlett-Packard, which this week unveiled plans to split itself into two.

Symantec is also considering announcing a breakup within weeks that would make its storage business — acquired in its 2005 purchase of Veritas Software — a separate company, people familiar with the plan said this week.

Ms Sarah Pompei, a spokeswoman for Hewlett-Packard, declined to comment. Mr Dave Farmer, a spokesman for EMC, referred a request for comment to a statement the company issued previously in response to activist investor Elliott Management Corp’s request that the company spin off its VMware unit.

The statement says the board regularly reviews and evaluates the company’s strategy. Ms Kristen Batch, a spokeswoman for Symantec, did not immediately return calls seeking comment.

With companies creating and storing increasing amounts of data and still more information coming from devices with sensors and tracking capabilities such as mobile phones, wearables and automation systems, the quantity of stored information is exploding.

From last year to 2020, the universe of digital information will grow by a factor of 10 from 4.4 trillion gigabytes to 44 trillion, IDC said in a study sponsored by EMC. It more than doubles every two years, IDC found.

That does not mean older storage vendors such as EMC will benefit.

Many customers building Internet-based cloud networks, made up of thousands of machines, are interested not in the pricey refrigerator-sized cabinets that EMC built its business around, but in smaller, more flexible storage devices, pairing cheap mass-produced hardware with flash memory.

Customers also do not want to make large upfront purchases such as those EMC used to count on.

Growth in solid-state storage drives, mostly made up of flash memory, will average 34 per cent a year between last year and 2018, IDC data analysed by Bloomberg showed.

For older hard-disk storage systems, the average growth rate is 15 per cent a year. BLOOMBERG