Storage Bubble Wrap

5:10 PM -- A column (sadly, unlinkable) in the business section of yesterday's New York Times called attention to two market dynamics of interest to storage networkers:

While the percentage of unprofitable storage companies going public may not be that high, this lack of pre-IPO profit is a unique aspect to the market we're in and testimony to the hope/naivete also known as investor confidence. It also harkens back to the late '90s and the dotcom boom, leading some to conclude that today's market may be generating another bubble.

A strong balance sheet and several quarters (more than two, certainly) of profitability used to be the prerequisites to floating of shares. That's no longer a hindrance or disqualifier.

Good morning, Data Domain. (See Data Domain Files S1.) Hello, Isilon. (See Isilon Bleeds, Vows Profits.) Riverbed, we know you're claiming profitability, but we got our eye on you, all the same. (See Riverbed Flows Toward Profitability.)One could argue that storage isn't as volatile as sectors like energy, retail, or transportation. And that might be right. Still, storage share prices followed the rest of the market down six weeks ago when the "Chinese flu" struck. Storage may be resilient, but it is not immune to broader market dynamics.

In addition to Data Domain, other storage vendors are poised for IPOs: Netezza, Sourcefire, VMware, and possibly Voltaire. (See Netezza Nudges IPO, Sourcefire Fires Up for IPO, VMware to Spin Out, and IPO Talk Strikes Voltaire.) Of the four, only VMware has any sort of consistent history of profit. Will flotation of these other companies stretch this potential storage bubble further?

Stay tuned, market watchers and storage buyers.

Terry Sweeney, Editor in Chief, Byte and Switch