Needham & Company on Enterprise Storage/DataCenter Tech: 2011 Summary and 2012 Outlook
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Needham & Company on Enterprise Storage/DataCenter Tech: 2011 Summary and 2012 Outlook
Analyst, Glenn Hanus, said, "Similar to 2010, 2011 was on balance a solid year in the datacenter/enterprise storage sector despite occasional geographic (selected EMEA) and vertical market (financials, Federal) pockets of softness. The renewed momentum for more strategic projects including virtualization and datacenter re-architecting involving some larger deal sizes that characterized 2010 largely continued into 2011. 2011 IT spending growth is expected at the high end of its forecasted 5-7%. C4Q outlooks indicate a modest increase in caution due to economic issues in Europe, some increased customer scrutiny of IT projects, and concerns about HDD supply. A bigger issue for the consumer sector, HDD supply is not expected to impact C4Q, but it introduces uncertainty for C1H12, which could impact virtually all datacenter related vendors (but the extent is unclear). Bellwether EMC’s 4Q guidance is for slightly less than normal seasonal strength (normal 12-15% q/q) and overall IT spending growth in 2012 at a slower rate than 2011. From a stock perspective, 2011 performance was quite mixed. Approximately 25%+ gainers included CommVault (Nasdaq: CVLT), Datalink (Nasdaq: DTLK), Mellanox (Nasdaq: MLNX) and Super Micro (Nasdaq: SMCI) while 25%+ decliners included Emulex (NYSE: ELX), Juniper (Nasdaq: JNPR), NetApp (Nasdaq: NTAP) and Quantum (NYSE: QTM). Major datacenter related themes from 2010 continued into 2011 as anticipated. These included datacenter consolidation into larger and more centralized locations to reduce OPEX; increasing adoption of virtualization—leveraging larger compute/storage pools to increase asset utilization; server/storage consolidation utilizing more standardized and modular scale out architectures combined with virtualization; cloud computing—datacenters evolving from application-based silos (apps, servers, storage) to a virtualized pool of shared server/storage resources forming private, public and eventually hybrid clouds; consolidation of storage networking, data networking and server clustering over a unified 10GE fabric; introduction of scale out 10GE switches/fabrics (i.e., Brocade VNX, Juniper QFabric, Arista, Mellanox); increased penetration of storage efficiency technologies to improve utilization; and networking and storage vendors enhancing their software stacks to better support server virtualization management features. Added themes which gathered business momentum and industry awareness in 2011 included: Flash everywhere—increasing use of NAND Flash as a datacenter optimizer (key variants include HDD replacement, flash cache in storage controller, PCIe server cards, SSD based arrays, flash ontrollers)—and “Big Data”—a nebulous term which generally encompass: analytics (i.e., Greenplum/EMC, NZ/IBM (NYSE: IBM)); bandwidth intensive apps (i.e., scale out NAS) and content (object storage—long-term storage of rich content (i.e., Atmos/EMC). Shaping industry dialog, EMC’s theme for
its annual EMC World event was “cloud meets big data.” Virtually all of these themes are still in relatively early stages of deployment and should be significant trends for years to come. To summarize our theme/trend comments into a few phrases that investors should hear repeatedly, they
would include virtualization, hybrid cloud computing, mobility, 10GE convergence and switch fabrics, Flash and Big Data. IDC projects IT spending growth in 2012 of 6.9% vs. 7% in 2011 (IDC predicted 5.7% for 2011). Surveys and Industry Analyst reports (IDC, InfoPro) related to our Coverage Universe suggest a slightly more cautious tone to spending in 2012 vs. 2011. Although not demand related, the HDD supply issue could be a revenue headwind in C1H12. Our anecdotal sense is generally healthy demand trends for datacenter/enterprise storage, albeit slightly slower growth, remain intact as we enter 2012. The key potential headwinds include uncertainty regarding HDD supply and European vicissitudes."
"We enter the year somewhat cautious near term on stocks in our Universe through the reporting period in January and February due primarily to HDD uncertainties potentially having a modest impact to C1H12 estimates. While stocks have pulled back following the floods, it remains difficult to determine if this issue is fully priced in. Following a little more clarity on HDD supply and the reporting season, we would focus on EMC (EMC, Buy) among larger caps, as it appears better positioned than anytime in recent memory to address major themes and execution has been solid. Romley’s pending release should benefit most Emulex (ELX, Buy), Qlogic (Nasdaq: QLGC)(Buy) and Super Micro (SMCI, Buy). We expect Mellanox (MLNX, Buy) to continue benefitting from leadership in HPC and new market opportunities (financials, web 2.0, Oracle). Among our micro-caps, we believe Datalink (DTLK, Buy) is also better positioned and executing well."
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Analyst, Glenn Hanus, said, "Similar to 2010, 2011 was on balance a solid year in the datacenter/enterprise storage sector despite occasional geographic (selected EMEA) and vertical market (financials, Federal) pockets of softness. The renewed momentum for more strategic projects including virtualization and datacenter re-architecting involving some larger deal sizes that characterized 2010 largely continued into 2011. 2011 IT spending growth is expected at the high end of its forecasted 5-7%. C4Q outlooks indicate a modest increase in caution due to economic issues in Europe, some increased customer scrutiny of IT projects, and concerns about HDD supply. A bigger issue for the consumer sector, HDD supply is not expected to impact C4Q, but it introduces uncertainty for C1H12, which could impact virtually all datacenter related vendors (but the extent is unclear). Bellwether EMC’s 4Q guidance is for slightly less than normal seasonal strength (normal 12-15% q/q) and overall IT spending growth in 2012 at a slower rate than 2011. From a stock perspective, 2011 performance was quite mixed. Approximately 25%+ gainers included CommVault (Nasdaq: CVLT), Datalink (Nasdaq: DTLK), Mellanox (Nasdaq: MLNX) and Super Micro (Nasdaq: SMCI) while 25%+ decliners included Emulex (NYSE: ELX), Juniper (Nasdaq: JNPR), NetApp (Nasdaq: NTAP) and Quantum (NYSE: QTM). Major datacenter related themes from 2010 continued into 2011 as anticipated. These included datacenter consolidation into larger and more centralized locations to reduce OPEX; increasing adoption of virtualization—leveraging larger compute/storage pools to increase asset utilization; server/storage consolidation utilizing more standardized and modular scale out architectures combined with virtualization; cloud computing—datacenters evolving from application-based silos (apps, servers, storage) to a virtualized pool of shared server/storage resources forming private, public and eventually hybrid clouds; consolidation of storage networking, data networking and server clustering over a unified 10GE fabric; introduction of scale out 10GE switches/fabrics (i.e., Brocade VNX, Juniper QFabric, Arista, Mellanox); increased penetration of storage efficiency technologies to improve utilization; and networking and storage vendors enhancing their software stacks to better support server virtualization management features. Added themes which gathered business momentum and industry awareness in 2011 included: Flash everywhere—increasing use of NAND Flash as a datacenter optimizer (key variants include HDD replacement, flash cache in storage controller, PCIe server cards, SSD based arrays, flash ontrollers)—and “Big Data”—a nebulous term which generally encompass: analytics (i.e., Greenplum/EMC, NZ/IBM (NYSE: IBM)); bandwidth intensive apps (i.e., scale out NAS) and content (object storage—long-term storage of rich content (i.e., Atmos/EMC). Shaping industry dialog, EMC’s theme for
its annual EMC World event was “cloud meets big data.” Virtually all of these themes are still in relatively early stages of deployment and should be significant trends for years to come. To summarize our theme/trend comments into a few phrases that investors should hear repeatedly, they
would include virtualization, hybrid cloud computing, mobility, 10GE convergence and switch fabrics, Flash and Big Data. IDC projects IT spending growth in 2012 of 6.9% vs. 7% in 2011 (IDC predicted 5.7% for 2011). Surveys and Industry Analyst reports (IDC, InfoPro) related to our Coverage Universe suggest a slightly more cautious tone to spending in 2012 vs. 2011. Although not demand related, the HDD supply issue could be a revenue headwind in C1H12. Our anecdotal sense is generally healthy demand trends for datacenter/enterprise storage, albeit slightly slower growth, remain intact as we enter 2012. The key potential headwinds include uncertainty regarding HDD supply and European vicissitudes."
"We enter the year somewhat cautious near term on stocks in our Universe through the reporting period in January and February due primarily to HDD uncertainties potentially having a modest impact to C1H12 estimates. While stocks have pulled back following the floods, it remains difficult to determine if this issue is fully priced in. Following a little more clarity on HDD supply and the reporting season, we would focus on EMC (EMC, Buy) among larger caps, as it appears better positioned than anytime in recent memory to address major themes and execution has been solid. Romley’s pending release should benefit most Emulex (ELX, Buy), Qlogic (Nasdaq: QLGC)(Buy) and Super Micro (SMCI, Buy). We expect Mellanox (MLNX, Buy) to continue benefitting from leadership in HPC and new market opportunities (financials, web 2.0, Oracle). Among our micro-caps, we believe Datalink (DTLK, Buy) is also better positioned and executing well."
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