All-Flash Arrays Offer Strong Opportunity For NetApp Despite Competition

At the end of 2012, NetApp (NASDAQ:NTAP) was the third largest player in the all-flash storage array market behind Violin Memory and IBM (NYSE:IBM), according to Gartner. ^[1] Rival EMC (NYSE:EMC) launched the XtremIO flash array in 2013 to help it overtake NetApp in the all-flash (or solid state) array market. The solid state array (SSA) market grew at an explosive pace from $240 million in 2012 to about $670 million in 2013. In that time, small players such as Pure Storage, Nimbus Data, Kaminario, and Solidfire gained share in the growing SSA market. However, NetApp’s market share declined from about 13% in 2012 to just over 10% in 2013 despite a nearly 100% surge in SSA revenues. NetApp launched its all-flash array, EF550, at the end of 2013 in an attempt to compete with upcoming and existing storage manufacturers. According to an IDC report, the SSA market is likely to grow at a CAGR of 34% through 2015 to become a $1.2 billion market. ^[2]

With this expected growth rate, industry giant Hewlett-Packard (NYSE:HPQ) has also entered the fray. HP launched its 3PAR StorServe 7450 all-flash array earlier in June, with claims that its array is cheaper and more efficient than existing products. ^[3] Additionally, Violin Memory has just launched its Concerto 7000 all-flash array, with a range of data handling and application management features specifically targeting the needs of mid-size to large enterprises. ^[4]

Below we take a look at the big players in the all-flash array arena and how this market segment is shaping up for NetApp.

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Rising Competition In The All-Flash Array Domain

The following companies could pose a threat to NetApp in the fast-growing all-flash array market space.

• Violin Memory

Violin Memory derives all its product revenues from selling flash arrays. Although the company witnessed a 27% annual growth in revenues in 2013, it lost significant share in the flash array market. The company’s market share declined from 30% in 2012 to 13% in 2013. The decline can be attributed to relatively higher pricing of Violin Memory products compared to competing arrays on a price per GB basis. Some Violin storage arrays range from $800,000 – $900,000 for 70 terabyte storage, translating to $8-10 per GB of storage. ^[5] However, Violin Memory management believes that its customers effectively get charged less on a “price per data center” basis due to the higher efficiency and lower operational cost of its latest Concerto 7000 all-flash array. ^[6] In the coming quarters, former market leader Violin Memory will look to gain some of its lost share, with the new product launch.

• IBM

IBM was the biggest player in the SSA arena in 2013, generating revenues of over $160 million. IBM commanded a 25% share of the market, up from about 19% in 2012. The company saw surprisingly high growth in flash array revenues – a 278% increase from about $43 million in 2012. The key difference causing the jump in revenues was the acquisition of flash-storage maker Texas Memory in 2012.

• Pure Storage

Pure Storage was the biggest gainer in 2013, with its revenues jumping from about $20 million in 2012 to over $120 million in 2013, making it the second largest flash-array provider after IBM. Pure Storage offers a series of arrays ranging from mid-level to very high performance. According to Pure Storage management, the company has products with unparalleled performance in terms of inputs/outputs per second (IOPS, the number or read/write operations that can be conducted). Most reported figures for IOPS and performance of flash arrays are for file sizes of 4-8 kilobytes (KB). However, Pure Storage estimates that the average file size for real-time operations is close to 38 KB. Under these test conditions, Pure Storage claims that its arrays with 4KB IOPS of 400,000 outperforms arrays with claimed 500,000 – 1,000,000 IOPS. ^[7] Pure Storage has already sold over a thousand all-flash arrays with none of its customers contributing more than 5% of total revenues, despite having large clients such as LinkedIn, Shutterfly and Workday. This highlights the industry-wide popularity of Pure Storage products.

• HP

HP’s newly launched 3PAR StorServe 7450 array has 1.92 terabyte commercial multi-level cell solid state drives (cMLC SSD) which cost about $14,300 per drive. ^[8] This translates to a price of just under $2 per usable gigabyte (GB) and includes data deduplication. The prices of similar products by competing storage providers vary from $3-5 per usable GB. ^[9] Cheaper drives could help HP gain mid-level enterprise clients where cost could be the differentiating factor.

• EMC

EMC’s flash array segment is one of the fastest-growing divisions within the company. Despite having virtually no presence in the all-flash space, EMC’s market share overtook NetApp’s in 2013 (note: EMC’s VMAX and VNEX arrays are excluded from Gartner’s analysis since they do not conform to Gartner’s definition of all-flash arrays). EMC generated about $75 million from all-flash array sales in 2013. The company has a “very aggressive” roadmap for 2014 to integrate XtremIO with its other product offerings including deduplication and Big Data analytics.

Impact On NetApp

The overall disk storage hardware industry has seen some pressure in the last year or so, as evidenced by a 3% y-o-y decline in revenues generated by external disk storage systems in 2013. Much of the decline can be attributed to falling storage prices, with enterprise grade storage costing as little as 50 cents per gigabyte (GB) for low IOPS drives and about $1.50 per GB for high performance storage. According to our estimates, NetApp’s average price per GB of storage products sold declined from $2.39 per GB in 2009 to about $1 per GB in 2013. We expect the average to decline to about 35 cents per GB by the end of our forecast period. The all-flash arrays could help drive NetApp’s average price per GB almost 5% higher than our present forecast (assuming NetApp keeps up with the industry-wide growth of 34%). If NetApp’s average price per price GB of storage is 5% higher than our present estimates through the end of our forecast period, it could lead to a 6-7% upside to our $41 price estimate for NetApp. On the other hand, NetApp’s growth rate of 100% in all-flash arrays was less than the overall industry growth rate in 2013 (182%). We currently forecast NetApp continuing to underperform the overall market’s growth, due to the rising level of competition.

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1. IBM Officially Biggest All-Flash Array Shipper, The Register, June 2014 [↩]
2. IDC’s First All Flash Array Forecast, IDC, April 2013 [↩]
3. HP aims to take flash storage array costs below $2 per GB, ZD Net, June 2014 [↩]
4. Violin Memory gives its flash storage an enterprise-friendly makeover, ZD Net, June 2014 [↩]
5. Violin Memory Joins SSD Vendors Adding Data Management, Solid State Storage, June 2014 [↩]
6. Violin’s Latest Flash Array Features Enterprise Data Services, Data Center Knowledge, June 2014 [↩]
7. Pure Storage 250 TB All-Flash Array Takes On Disks, Enterprise Tech, May 2014 [↩]
8. HP’s All-Flash Array Now Matches Fast Disks On Price, Computer World, June 2014 [↩]
9. Compare The FlashArray With Other Flash Alternatives, Pure Storage, May 2014 [↩]