IBM's storage systems sales decline has partners talking

Generally storage sales are up, but a 1% decline in IBM storage systems sales does nothing to inspire confidence in IBM partners.

The news that sales in IBM's storage systems business fell by 1% in its most recent quarter has caused many IBM partners to think carefully about their future in the storage business with Big Blue.

During IBM's conference call on Tuesday, Mark Loughridge, senior vice president and chief financial officer (CFO) said: "Storage had a weak quarter after a solid second half of 2006. External disk was down year to year principally driven by declines in the U.S.," Loughridge said. "We did not execute in a very competitive market in high end and mid-range storage. Our tape business was flat year to year, holding share in that market. We believe we held share in total storage this quarter," Loughridge added.

Forrester Research Inc. analyst Stephanie Balaouras observed that several vendors were having difficulties with their tape business as customers continue to move from from tape to disk -- including disk-based virtual-tape libraries -- for backup and archiving.

"That's where I've seen some declines in other vendors because it seems enterprises are favoring lower cost disk technologies, modular disk technologies and are buying a lot more mid-tier storage systems," Balaouras said.

While Balaouras said the one-quarter decline isn't particularly troubling, she did concur that IBM suffers from a lack of effective field operations. IBM's failure to build a convincing case or effective sales campaign for its DS3000-series of entry-level disk arrays for small and midsized businesses is just one example of a disconnect between engineering and field sales.

"One mistake that IBM made with these products is that they focused on the speeds and feeds as opposed to talking about what SMBs really care about, which is ease of use," Balaouras said. "Contrast that with what HP did with the All-In-One. HP focused on the All-In-One as a product that is going to be a storage platform that's going to be remarkably easy for anyone without storage expertise to rapidly configure and deploy," Balaouras added.

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Eric Vonderhaar, systems engineer at Mainline Information Systems, said the DS3000 series are new products and there are still a few kinks to work out.

"Once we get the boxes on site they are doing very well, but there have been some roadblocks for support issues," Vonderhaar said.

Since the DS3000 series became available on Jan. 30, IBM has revisited the products and just this week announced it will bundle controllers, cables and host bus adapters (HBAs) into specific configurations to make it easier for customer to use.

IBM partners like Francis Poeta, president of Cliffside Park, N.J.-based P&M Computers Inc., said he too is not concerned about a the 1% decline and believes the story of storage profits is still unfolding, primarily because no vendor can claim that is has cornered the SMB market.

"I don't think it's a trend. Next year the revenue numbers could be higher. In the marketplace there's a huge amount of storage deals that may go down in the midmarket space and no one knows who is going to purchase what products from what vendor," Poeta said. "The verdict is out. Every vendor has an SMB play, but no vendor has traction yet in the space and IBM still has a chance to win there," Poeta added.

In the meantime, if IBM does increase its footprint among SMB customers it can no longer depend on former IBM reseller Modcomp who this year replaced IBM with Hitachi Data Systems.

Disappointed Modcomp president, Victor Dellovo, said his company had lost $500,000 worth of contracts after the company had registered several deals and fallen victim to competitor IBM partners that reconfigured elements of the system and re-register the deal.

"Dealing with IBM became impossible. We would register an opportunity, and another reseller would change the configuration, let's say by a hard drive, and give it a new registration," Dellovo said. "On one contract our sales person spent nine months working on the deal," Dellovo added.

Modcomp, used to sell IBM's DS4000, that was then. "IBM registers a configuration; they don't register an opportunity," Dellovo said.

By comparison, EMC's recent channel changes are being felt at Modcomp, where Dellovo said his company is reaping the benefits of a channel program where deal registration is not tampered with.

"Recently working with EMC has been very good. Everything we've worked on and everything that has been an EMC win Modcomp has got the deal," Dellovo said.

IBM also announced that revenues from its Tivoli software, which allows customers to centrally manage data security and storage, increased by 18%. On the server side revenues from the Systems z server products increased 12% compared to the same perios last year. The System p Unix server products experienced a 14% increase and System x servers increased 7%. The System i servers decreased by 13% compared to a year ago.

Let us know what you think about this story; e-mail Nicole Lewis, Senior News Writer

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