Pat Martin, President & CEO, StorageTek

When Pat Martin took over as president and CEO of Storage Technology Corp. (StorageTek) (NYSE: STK) in July 2000, he would have been met with wails of laughter if he'd claimed the struggling tape company was destined to conquer the storage disk business.

But today, just three years after the company looked as if it could be sucked into a swamp of financial problems, Martin makes that claim with a very straight face and he apparently believes that StorageTek is in a position to unseat the likes of industry kingpin EMC Corp. (NYSE: EMC) in the disk market.

"Almost every decade there are new leaders in the disk business," he says. "EMC came in with RAID technology in the mid-'90s, and they built, obviously, a terrific company. But every time there's a technology change, I think there's an opportunity for leadership to change."

What's this supposed "inflection point" Martin's referring to? Low-cost ATA disk drives, which he says will account for the vast majority of disk storage that's sold in the years ahead.

"I strongly believe that ATA is going to redefine how people use vintage subsystems," he says. "If 90 percent of the stuff sitting on primary disk is never accessed, and most of the data sitting on disk is replicated information, then you've got a technology that's so substantially cheaper without an awful big penalty in terms of response time, what would you use?"StorageTek, which was considered a purely tape company when Martin took over, has been trying to promote itself as an overall storage company offering a variety of different storage products and services. While tape continues to be StorageTek's main source of income, the company's disk business – with a special emphasis on its new ATA disk-based backup system, BladeStore – has been growing strong (see StorageTek to Punch Into Disk Backup and StorageTek Puts Backups on Auto).

Last month, the company announced that disk sales during its second fiscal quarter jumped 19 percent, to $42 million (see StorageTek Keeps on Growth Curve). That included sales of BladeStore as well as StorageTek's D-series primary disk subsystems, which it OEMs from LSI Logic Storage Systems Inc. StorageTek also announced last week that it had slashed prices for its D-series, as it continues to pump up the pressure on its formidable competitors in the disk space.

Obviously, it still has a long way to go before it's considered a disk storage leader in the ranks of EMC, Hewlett-Packard Co. (NYSE: HPQ), or IBM Corp. (NYSE: IBM).

But Martin, 62, may just be the guy to drive StorageTek's disk business forward, having already helped turn the company around even as the tech bubble was deflating with a lugubrious ppppfffffffffffffffft. StorageTek recently reported its twelfth consecutive quarter of earnings growth, and since Martin came onboard, the company has more than doubled its stock price (see StorageTek Keeps on Growth Curve).

Before joining StorageTek, he worked for Xerox Corp. (NYSE: XRX) for 23 years, finishing his career there in 2000 as president of the company's North American Solutions Group.Martin recently spoke with Byte and Switch Senior Editor Eugénie Larson about StorageTek's aspirations in the disk market, its international outlook, and diseased Colorado prairie dogs, among other topics. To read the full interview, click on the links below:

— Eugénie Larson, Senior Editor, Byte and Switch

Byte and Switch: When you joined the company three years ago, StorageTek was in a very different state. [Ed. note: Wyoming?]

Martin: Certainly, when I got here, the North American distribution organization was really in turmoil, and we had an awful lot of turnover in the year 2000. I think it was close to 40 to 45 percent of our organization that was leaving. We spent a lot of money, brought in new management, invested in a lot of infrastructure support, sales management, systems, and so forth, and invested in training. And we have more feet on the street today, more salespeople today, more service people today, more systems engineers today... There was an awful lot of waste here. We've really continued to trim the fat that I saw when I got here.

Byte and Switch: What about the company's focus?Martin: We also really started to reposition ourselves as a company. I think people viewed us as a tape company in the year 2000. We made a relatively bold positioning around November 2000 that we were a storage company, and that it was our intention to be the largest independent supplier of storage solutions. That repositioning said that we would compete in disk, as well as networking, as well as tape, and we revitalized our total product line. Over the last three years, we probably brought out close to 50 new products: tape libraries, tape drives, new virtual tape systems, virtual networking systems, new generations of our disk drives, and so forth.

Byte and Switch: But you are still primarily a tape company. People have been predicting the rapid demise of tape for some time now. Isn't that a worry?

Martin: Well, we do get a lot of our revenues from tape, but if you take a look at the growth sectors, our service business – which is all built around the information lifecycle management of going in and working with customers on how they can manage their total storage infrastructure more efficiently, more effectively – that's been growing double digits... Likewise on our disk business, we've been growing double digits on disk and in our networking business, so a lot of growth is coming into end markets and markets that, by the way, are declining a heck of a lot more rapidly than the tape business is supposed to decline.

The last thing I'll say about tape, before I get off that, is that people have been predicting the decline of tape for a long time, and they tend to be disk companies, because they don't sell tape. So we position ourselves as a storage company.

Byte and Switch: Still, your tape revenues have remained either down or flat, right?Martin: That's correct. And that market is a relatively flat market... Tape is still a very good business. It is still a critical need for customers. Eighty percent of the digital information sitting in data centers sits on tape. That's not going to go away. It's cost-prohibitive from both a management point of view as well as from a technology point of view to just take that information, and just have it sit on an alternative media... Today, disk is not a serious alternative to either archival backup or recovery.

NEXT: Disk: Expensive & Idle

Byte and Switch: So you aren't planning on shifting around your mix much, going forward?

Martin: Well, our R&D is moving more into software. EchoView, for example, is fundamentally a software solution for doing instant backup and recovery in the open environment. [See StorageTek Hears an Echo.] We have a lot of other efforts like that, so we are shipping more and more of our R&D dollars into the software arena.

Byte and Switch: So this whole information lifecycle management story – I know that you guys talk a lot about it. Other companies are talking about it a lot. Is there actually a demand for it, or is it just a buzzword?Martin: Well, let me tell you the conversation I usually have with the CIO. And I've done this now with something like 300 CIOs... Ninety percent of the information you have sitting on disk is never used. This usually gets their attention. Yet you're growing your disk environment, 15, 20, 30 percent a year, and in terms of storage capacity, probably 70 percent a year. And so, why do you have all that stuff sitting on disk – which is the most expensive medium you have – when you have the ability to move it? We have the opportunity to take that excess, those duplicate sets of information and the infrequently used information, and move them from disk to tape, or to ATA drives, depending on their needs...

[Information lifecycle management] is really starting to gain traction for a couple of reasons. One: In the financial areas, now it's a legal requirement that you keep all email for three years... So it has the characteristics of high storage requirements, but low retrieval requirements. Clearly that plays into our strength. Another example is all the HIPAA [Health Insurance Portability and Accountability Act] regulations that are requiring information storage for a long, long time... If people just start rolling that all into primary disk, their budgets are going to go through the roof.

NEXT: 'An Opportunity for Leadership Change'

Byte and Switch: Do you think you have any chance of competing against EMC or IBM in the disk array market?

Martin: Almost every decade there are new leaders in the disk business. If you go way, way back when you were probably in diapers, or maybe not even born yet, IBM dominated the disk business in the '70s. [Ed. note: By the mid-'70s, at least, we were already potty-trained.] Then in the end of the '70s and the beginning of the '80s, Control Data came along. Control Data... sold more disk drives in IBM environments than IBM did. Then there were a few other players... They're all gone. EMC came in with RAID technology in the mid-'90s and they built, obviously, a terrific company. But every time there's a technology change, I think there's an opportunity for leadership to change.Byte and Switch: So what kind of technology change are you taking advantage of?

Martin: I strongly believe that ATA is going to redefine how people use vintage subsystems. Let's go back to the statistics. If 90 percent of the stuff sitting on primary disk is never accessed, and most of the data sitting on disk is replicated information, then you've got a technology that's so substantially cheaper, without an awful big penalty in terms of response time – what would you use?

Byte and Switch: What about introducing your own storage arrays? Have you thought about doing that? [Ed. note: StorageTek now OEMs its D-series storage systems from LSI Logic.]

Martin: Well, we do have the SVA [Shared Virtual Array]. I noted that one of our competitors from Massachusetts [ed. note: presumably, he means EMC] said they had the first enterprise-level virtual system, and that kind of got a strong laugh in the industry, because we've been selling our SVA product in the enterprise space since 1995. So we have a very strong product there that really answers some very critical needs for customers. Quite frankly, we view it as a terrific product, but we don't sell it to everybody because of our own distribution capacity challenges. If that product was in the hands of an IBM, which it was a couple years ago, I think it garnered about 25 percent market share. We see this as a terrific product. We had a good second quarter in terms of shipments in that product, and we continue to gain traction in the market place with it.

Byte and Switch: OK... But no other storage array plans?Martin: Well, clearly, we're building an awful lot of future on the whole ATA subsystems. But, like I said, if you step back, what we are really building is the ability to offer customers a hierarchy of storage solutions. So, my view is, and I think this is the conventional view, that there is an awful lot of disk sitting in the marketplace today that is not used very well... We're all about going into customers that have already made huge investments in their storage areas, and complementing those investments with our own technology, both hardware and software, to allow them to more productively use their current storage environments.

NEXT: Storage Overseas

Byte and Switch: What about sales geographically? You mentioned that North America was doing better, but how bad is StorageTek being hurt by the whole lag in the economy in Europe, and especially in Germany?

Martin: We're pleased with the progress we're making in North America. We're very pleased with the progress we're making in Asia, but clearly, the challenge that everyone in this industry has right now is Europe, led by Germany. It has certainly been challenging for us to make many inroads there above where we were last year, so we're basically flat, is the best way to characterize it with last year. And I don't see those economies recovering in the short term. Certainly, I'm going to go over to Germany in September, when I'll have a better view, but right now we see the economies there still struggling.

Byte and Switch: Are you shifting your focus more toward Asia then?Martin: Well, no. Because of our success in Asia, we continue to invest in Asia, as well as keeping our focus on Europe. We've not disinvested, we've not downsized. We're continuing our current marketplace strength in Europe. We want to be positioned so that when the market comes back, we'll be able to take advantage.

Byte and Switch: You actually lived in China for a while. It sounds as if the market there is doing well. Is there a reason for that?

Martin: Well, absolutely. The whole economy in China has been doing well. And they've been on an economic growth of between 6 and 9 percent every year for the last five or six years, as they reindustrialize that country.

Byte and Switch: But is there any reason that storage in particular is strong in China?

Martin: Well, God love them. They're so entranced by technology that we're in every major bank in China, and they're already digitalizing a lot of their television, so our systems are in there helping archiving a lot of their broadcast systems. So banking, government... AIG is over there in insurance, so we've started to sell into the insurance market. But it's fundamentally the same type of markets that we have here: Markets that require immense amounts of storage, and that have to make sure that if there is a disaster of one type or another, they've got the ability to keep on executing.NEXT: Peanuts & Prairie Dogs

Byte and Switch: I hear that you grew up in the Bronx?

Martin: That's correct.

Byte and Switch: Has that had any impact on the way you've tackled the corporate jungle?

Martin: Well, it's interesting. I actually claim that, despite all of my degrees, my best education was selling peanuts in Yankee Stadium.Byte and Switch: Really?

Martin: Certainly coming from New York was a terrific experience. I grew up at a great time for being a New Yorker. We tend to be a little bit more straightforward when we talk than other people in the country. [Ed. note: That's at least one thing Joe Tucci at EMC would no doubt agree with – see our interview with Tucci.] I think the style, people have to get used to... We tend not to pussyfoot around when we talk. We tend to get to the point more directly than others do. I'm not sure if I would be insulting other parts of the world if I decided that Washington or Florida or other parts didn't groom great leaders, because they do. You can find great leaders anywhere.

Byte and Switch: Speaking of jungles, you guys ran into some trouble last year with some activists protesting your exterminating prairie dogs. [See Protesters Dog StorageTek in San Jose.] Were you worried about the monkey pox?

Martin: Well, yeah. This is kind of a sad story, and I guess we didn't manage it very well. Right on our campus here [in Louisville, Colo.], we have a high school, a grammar school, and we have a hospital. And all of them were very concerned about the proliferation of the prairie dogs – and the little critters were getting pretty aggressive... We went back and forth and round and round on what to do. And so the decision was made [to exterminate the prairie dogs]. And clearly, from a publicity standpoint, it was terrible... but quite frankly, this is alarming to me, because this was exactly how the black plague started. It is a serious issue.

Byte and Switch: And have you got that problem under control now?Martin: Well... we still have prairie dogs. No one's come up with an answer. There isn't an easy answer to it. [Ed. note: Hmmm... will StorageTek's expansion of its disk storage business go more according to plan?]

— Eugénie Larson, Senior Editor, Byte and Switch