Hitachi Storage Sales Falter

Storage revenues drop 11.4% sequentially as EMC, IBM grab share. Is the party over?

September 9, 2003

2 Min Read
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The strong run by Hitachi Ltd. (NYSE: HIT; Paris: PHA) in the high-end storage market appears to have lost some steam, according to the company's most recent quarterly earnings results.

In the calendar second quarter of 2003, Hitachi's storage revenue -- which includes sales by Hitachi Data Systems (HDS), its worldwide marketing arm for enterprise storage -- declined to 62 billion (US$517 million), down 11.4 percent sequentially but up about 3 percent year over year. Sales of high-end Lightning revenue remained relatively flat year-over-year and were down nearly 11 percent sequentially.

Analysts note that the drop reflects the company's seasonally weaker fiscal first quarter. But Hitachi's disappointing results at the high end of the storage market do indicate that it lost several share points to EMC Corp. (NYSE: EMC) and IBM Corp. (NYSE: IBM), says Shebly Seyrafi, an analyst with A.G. Edwards.

"We estimate that Hitachi lost 4.7 percentage points of share in the calendar second quarter," he says. IBM gained 3 percentage points, while EMC picked up 1.7, according to A.G. Edwards.

In one example of business that Hitachi has been losing, EarthLink Inc. earlier this year opted to scrap Hitachi's Lightning in favor of EMC storage -- including a DMX1000 system. "EMC, at least from our perspective, had lost the lead to Hitachi in 2000 to 2001, but they've clearly gotten the lead back," Ronald Williams, EarthLink's senior manager of infrastructure operations architecture, told Byte and Switch in June (see EarthLink Exalts EMC).Other Wall Street analysts say Hitachi is now visibly suffering at the hands of EMC's Symmetrix DMX array, which EMC introduced in February 2003. "We believe it will be particularly important for HDS to continue to broaden its storage product line and strengthen its software offering to match moves by EMC," says Harry Blount, analyst at Lehman Brothers.

It wasn't all bad news for Hitachi: Its midrange Thunder storage family saw relative strength in the quarter, with shipments growing 25 percent sequentially. "The company is selling more Thunders (midrange) now that the company is no longer supply-constrained on this product," notes Seyrafi.

In addition, analysts point out that both Hewlett-Packard Co. (NYSE: HPQ) and Sun Microsystems Inc. (Nasdaq: SUNW) last month extended their OEM agreements with Hitachi, indicating that its partners are confident in the Lightning roadmap in the years ahead (see HP, Hitachi Renew Vows and Sun: We Still Love Hitachi, Too!).

Hitachi is expected to introduce a new high-end Lightning array in the first half of 2004. Unfortunately, that will be too late to stem the losses the company is currently experiencing in the market.

— Todd Spangler, US Editor, Byte and Switch

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