6:00 PM -- Storage vendors like to refer to the fourth quarter as a budget flush. It's when customers spend whatever they have left in their budget so they don't lose it. Not surprisingly, that's almost always the biggest revenue quarter for everyone.
Like other flushes, a budget flush is inevitably followed by a downward spiral. That's happening now as storage companies see revenues decline. Still, this first quarter appears slower than usual.
Market leaders EMC and Seagate had disappointing earnings or forecasts, Emulex came in nearly $20 million below its original guidance, and FalconStor and Overland Storage lost money last quarter. (See EMC Hiccups, Waits for Clariion and Storage Financials Take a Dip.) Considering Emulex, FalconStor, and Overland rely on major storage vendors to sell their products, that's a troubling sign. Even Hitachi Data Systems, which is Japanese owned and usually escapes U.S. seasonality patterns, took a dive in earnings from last quarter.
At least part of the slump has to do with technology transitions. Vendors are moving to 4-Gbit/s Fibre Channel and serial-attached SCSI (SAS) now, and iSCSI vendors are loudly talking up 10-Gbit/s Ethernet, although it's still probably nine months away from reality. (See 10G Supply Exceeds Demand.) Smart customers will hold off buying storage systems when they know a better one is right around the corner. Or they'll get a nice discount if they buy the older stuff.
It will be interesting to watch the next quarter or so to see if revenues tick back up as new gear rolls out, or if storage spending might be hitting a wall. It's still a long way to that next budget flush.
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