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STEC’s Demise is Greatly Exaggerated; SEPATON Survey Finds Data Growth Rates Slowing

Maybe it is just me but 2010 has, up until now, seemed pretty slow on the news front. Or maybe it is just that much of the news released did not really pique my interest. Regardless, the last two weeks a number of news items jumped out at me that I wanted to spend a little time commenting on today in my weekly Friday recap blog.

I normally refrain from commenting on the earnings of any company in the storage space but one has to wonder if investors did not over react a bit to a statement in this week’s STEC earnings call regarding its weaker-than-expected outlook. STEC’s CFO, Raymond Cook, made the following comment toward the end of his prepared statements in STEC’s earning call (a of which is available on STEC’s website): “Turning now to our guidance for the first-quarter of calendar year 2010, we believe that the the first half of 2010 will be a trough period for our business due to an inventory carryover by our largest customer.

That statement obviously did not make investors giddy with excitement based upon the plunge in STEC’s stock price that took place the day after its earnings call. However one would think just based upon those statements that the future for solid state drives (SSDs) and STEC looks pretty dismal since SSDs are STEC’s primary product. However reading through Cook’s earlier statements, one has to be pretty impressed by what it accomplished in Q4 2009. For instance:

  • Revenue from its ZeusIOPS SSDs was $74 million in Q4 2009, up 21.9% over Q3 2009.
  • Flash related products accounted for 88.5% of its total revenue.
  • STEC shipped 846,000 nonservice units in Q4 2009, a 2.8% sequential increase from the 823,000 units shipped in Q3 2009
  • It increased its GAAP gross profit margin from 50.9% in Q4 2009 from 49.7% in Q3 2009.

But maybe of more interest were the other comments that Cook made earlier in the call concerning R&D as STEC increased its investment in R&D by over 50% from Q3 2009 to Q4 2009. He attributed this rise in investment to new R&D hires and higher expenses associated with the design and development of its SSD and Flash controllers.

To me this signals that STEC and its SSD products are experiencing a bump in the road but longer term the future (6 months out) seems to bode well for SSD in general and STEC specifically. After all, why would anyone continue to make such a significant investment in R&D if its products had no future? Anyway, this week’s nose dive in STEC’s stock price helps to explain why I stick with technology and not financial analysis.

Another piece of news that came out the week of Feb 15, 2010, was a technology survey that focused on Enterprise Data Protection Priorities for 2010 that was produced by SEPATON. This report specifically tried to measure data protection in enterprise environments that SEPATON classified as an organization at least 1,000 employees and 50 TBs of primary data to protect. Based upon that definition, of the 441 individuals that responded to the survey, only 165 of them met SEPATON’s criteria of an enterprise company.

But among those respondent, SEPATON did uncover some interesting factoids:

  • Nearly half of those enterprise companies (47%) had 200 or TBs of primary data to protect
  • Over 90% of these organizations are still seeing annual data growth rates that exceed 10% but only 3% are seeing annual growth rates over 50%.
  • Backup windows are still not under control with 61% reporting it taking over 20 hours to complete a backup and 43% reporting that it takes over 24 hours to complete a backup.
  • The top 2 priorities in regards to backup and data protection for 2010 were what you might expect: improving DR for primary and/or secondary sites (70%) and use deduplication to optimize storage and replication (62%)
  • Number 3 on their priority list was a bit of surprise in that 53% of organizations rated improving regulatory compliance over such priorities as reducing the use of tape media (52%) and even meeting backup and restore windows (only 47%).
  • Maybe no surprise is that a full 73% of these enterprises expected their data protection budget to either stay the same (50%) or decrease (23%) in 2010.
  • Over 60% of these organizations expected to increase use of disk-to-disk backup in 2010 while over 40% expected to increase their use of VTL appliances.

Again, from my perspective, there were really no big surprises in this survey other than the one I already mentioned and maybe the fact that data growth rates seem to be slowing. However whether data growth is actually slowing or data growth is occurring at about the same pace as before is difficult to ascertain. It might be that data is still growing as fast but because of the huge amount of data already under management in these enterprises, the amount of data growth no longer results in those eye popping 50-100% year-over-year percentages that we saw as recently as a couple of years ago.

Finally, there were two other pieces of news that also caught my eye this week. The first had to do with Iron Mountain’s acquisition of Mimosa Systems. This is a really smart move on the part of Iron Mountain. Mimosa’s NearPoint software is really well set up for sending data offsite for archiving and facilitating the automated offsite recovery of applications like Microsoft Exchange and SharePoint. This product should play well in Iron Mountain’s steadily growing portfolio of archiving, data protection and disaster recovery products and serve to continue to further extend its lead in the records management space where they already dominate.

The final piece of news was that SGI acquired what was left of COPAN Systems at a foreclosure sale for $2 million dollars. This is a pretty remarkable demise for this company considering that as recently as a few years ago it appeared that COPAN had the right answers for the emerging disk-based backup space with its VTL and MAID technologies. However once deduplication appeared on the market, it seemed to take the wind out of COPAN’s sails and now it has completely gone under.

Well, that’s about it for this week.  Have a good weekend and be sure to stop by next week as I have a number of interesting blogs coming out regarding new product announcements around data classification and a new application for SSDs.

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