Convergence in the Data Center’s Future
Unni NarayananTuesday, February 2nd, 2010
We are at the forefront of an exciting period for data center design and innovation driven by what is occurring in three separate-but-fast-converging market segments: co-location businesses, managed services vendors and cloud providers.
Our view today is that the future, and fortunes, of each segment is inextricably linked and that the relationship of key conditions in each segment — capacity for co-lo, profit margin for managed services and technology innovation for cloud providers — will meaningfully define the opportunities, challenges and performance of what we see as a truly amalgamated marketplace in the next 10 years. Briefly, here is what PGR’s network is reporting:
Capacity — Enterprises suffer a data center capacity shortage brought on by a dearth of viable real estate, a state of affairs that PGR’s network consistently characterizes as fundamental rather than temporary. The capacity squeeze is made worse by growing demand from SMBs among others that want to get out of the data center business with its acute heat/power problems.
Margin — Right now, SMBs and enterprises are willing to pay a premium for the value added by managed services providers. We believe this will result in continued high margins for managed services providers over the foreseeable future.
Technology innovation — While it is clear that elements like SAAS are accelerating, all of the technologies related to bill-back, security and private clouds and back-end support for performance enhancement among others are immature. A lot of heads are “in the clouds” right now and speculation about what is coming and what will occur as a result is intense.
Looking at the three segment reports above, it is clear that developments and conditions in one segment weigh strongly on the others. Thus, factors that impact co-location vendors inevitably affect the prices enterprises are willing to pay managed services providers and create opportunities for cloud providers to innovate to solve IT challenges.
More to come.
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Tags: Co-location, Enterprise computing, managed services, SAAS, SMBs
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You Heard It Here First: BRCD a Winner in 2010
Unni NarayananTuesday, January 26th, 2010
Any number of pundits will tell you BRCD is on the ropes, hanging by a fingernail, ready to succumb to a combination of 1.) flat growth rates in FC and, consequently, no TAM to fuel BRCD’s expansion in the data center; 2.) technology obsolescence at the hands of FCoE and big price and margin erosion in core storage products due to insufficient differentiation; then 3.) a plunge into the really deep end with the Foundry acquisition, which the punditry avers will destroy BRCD’s very foundation.
Sounds pretty bad. But wait! Our checks show BRCD is far from rolling over, taking it on the chin or moving to the Jersey Shore. In fact, PGR’s network accentuates the positive noting BRCD style and panache that should stand it very well this year. Check it out:
FC demand is robust because of refreshes and green-field opportunities. If someone counted the total number of FC cable, HBAS and switches in 2010 vs. 2009, they might not see a big difference but it seems no one is counting the huge “rip and replace” opportunity in the ongoing storage and data center consolidation build out.
There is a huge co-location capacity squeeze. New co-lo space is expected to come on line throughout 2010. And, although SANs by and large do not saturate BRCD 8Gb/sec Director class switches, it is only an INCREMENTAL cost to refresh the SAN with high-performance products as part of an upgrade in the co-los. Furthermore, BRCD is well positioned to handle FCoE when it becomes real. That and CSCO has stopped attempting to “buy accounts” with the largely unimpressive Andiamo legacy products. Hence, we do not expect accelerating product erosion.
Everyone likes to say that if BRCD could “do it over again,” they would have given the Foundry acquisition a second thought. However, the reality is that BRCD controls its own destiny if it can manage the integration of the Foundry products well. In that scenario, it is quite possible for BRCD to “pick off” some incremental share from the likes of JNPR. And, with sufficient effort, they can move up in the networking hierarchy. HPQ’s acquisition of COMS is the end of any possible merger with BRCD because the war in the data center between CSCO and HPQ will center around the winner of the storage battle. All that and BRCD is a free agent that can join either side.
Not so bad after all, we say.
Tags: BRCD, Brocade, CSCO, FCoE, Foundry, HPQ
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BRCD Survey: Switches and HBAs? Selling to both sides…
Unni NarayananThursday, October 29th, 2009
It is PGR’s view that BRCD has solidified its hold on the FC switch market and is maintaining solid margins in a macro environment favorable to Greenfield storage deployments. Additionally, our network continues to report BRCD is picking up HBA share but the question remains: at who’s expense?
For different reasons, our network is positive on BRCD. Here’s a summary:
1.) All agree BRCD is really the only game in town in core switching products and margins are robust;
2.) But the value of BRCD’s solid market position is offset somewhat by questions about the fundamental viability of the Fibre Channel market itself. Many of our experts see lackluster growth over the next year, the result of better traction in FCoE;
3.) Right now, our network does not think BRCD poses an immediate threat to QLGC or ELX in HBA but their position gives customers a look at how BRCD can work both sides of the equation. The question remains whether BRCD can get enough out of HBA to drive switch sales. The jury’s still out on that.
Clearly, storage is a key battlefield in the war for the data center. And no clear victor can emerge from the likes of CSCO, HPQ or IBM until a major player focuses on the idiosyncrasies of areas such as SAN switching. So, in the meantime, BRCD is secure in its role as a profiteer selling to both sides.
Tags: BRCD, CSCO, ELX, FCoE, HPQ, IBM, QLGC
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Evolutionary versus Revolutionary Data Centers
Unni NarayananMonday, August 17th, 2009
Microsoft’s and Google’s contrasting data center strategies reflect the differences between evolutionary and revolutionary approaches in technology implementation. History has proven that each paradigm has its own risks and rewards.
MSFT is riding the well known trends toward the usage of data center containers. This natural evolutionary approach requires a minimum investment in surrounding building infrastructure and a reliance on broadly available commodity hardware. The benefits here are a complete negation of risks related to specific vendor exposure and wasted dollars on potentially fruitless R&D efforts. In a sense MSFT is waiting for the risk/reward pareto point to clearly emerge from natural market forces. Historically this is consistent with MSFT’s development efforts (e.g., their DOS relationship with IBM or their relatively late but successful offering with Windows as compared to Apple’s products).
In contrast GOOG believes it already understands the nature of that elusive optimal data center solution. GOOG’s teams rightfully view themselves as technology visionaries and want to take a revolutionary approach in design. Hence, GOOG needs to develop custom hardware solutions. This strategy has not always paid off. For example, GOOG vacillated between purchasing servers from vendors such as RACK and designing their own compute platform solutions. And yet, our checks at Primary Global Research indicate that for the time being GOOG’s data center approach is a standard that many wish to emulate.
And, while the data center design battle rages, in the backdrop state tax laws are in flux. This is an issue that transcends both the evolutionary and revolutionary approaches. Neither MSFT nor GOOG can predict the political whims of the taxpayer – especially, when data center consolidation drives lower TCO (totally cost of ownership) and that savings is largely a result of reduced headcount. Once the legal ambiguities dissipate, the battle lines will be more cleanly drawn and, as Ashlee Vance writes in his recent NY Times Bits blog column, the evolutionists and revolutionists will be fighting in a neighborhood near you!
Tags: Data Center, GOOG, MSFT
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Co-Lo Mojo Less So
Unni NarayananMonday, August 10th, 2009
Q2 of 2009, PGR started a program of quarterly co-location checks. Our network has consistently reported a shortage of available co-location space with price-points increasing. This does not appear to be a short lived phenomenon. Rather, there are fundamental drivers making available capacity quite tight, including: 1) Advances in cloud computing, 2) Maturity and widespread adoption of virtualization technologies, 3) An inherent shortage of viable real estate, 4) Momentum behind municipalities to remain green, which further exacerbates demand problems, and 5) Increased power and cooling challenges that are too difficult for in house IT personnel to handle.
Look to see this thesis updated and enhanced as we continue our quarterly checks.
Tags: Co-location
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HPQ: Network Rookie
Unni NarayananMonday, August 10th, 2009
On paper at least, HPQ looked like a “shoo-in” to join the networking big time with its Procurve offering. And I must confess, I have been cheering for the rookie if only to give CSCO, the salty veteran of interconnectivity, some competition.
However, PGR’s talent scouts (HPQ/CSCO experts) report a completely different story. Specifically: 1) HPQ has a poor track record with networking hardware, 2) The “go to market” strategy around Procurve is nonexistent, 3) Organizational changes at HPQ don’t appear to favor good execution around Procurve, and 4) CSCO just has a better sales force. Still, important questions remain in terms of which player will ultimately win the data center. For example, CSCO’s blade strategy has momentum largely because CSCO’s name is on it (not because there’s a real product).
As they say in sports, come game time, both rookie and veteran have to show up and play. HPQ’s presence on the server side is real. The question is whether HPQ can leverage the talent to raise its game.
Tags: CSCO, HPQ
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Storage Wars: The “EMC” Strikes Back…
Unni NarayananTuesday, August 4th, 2009
Storage remains a relatively vibrant market despite the difficult economic environment. The reasons underlying this phenomenon are well known: 1.) storage purchases are not “nice to have,” they are “must have” in order to handle unmanageable data set sizes; 2.) storage consolidation reduces TCO; and 3.) of course, SOX in the backdrop.
While these macro trends are great for all players, we have noticed an incremental shift to EMC’s favor for a number of reasons all related to EMC’s size (the “force” so to speak): 1.) EMC’s show of muscle in purchasing DDUP puts NTAP on its heels with fewer opportunities to build good product differentiation; 2.) EMC’s ability to discount more deeply (and, as one of our experts noted, EMC is discounting off a higher markup) cuts NTAP out of deals; and 3.) EMC’s larger sales force creates barriers for NTAP in emerging geographies.
That said, our checks indicate that NTAP is hanging on to its core SMB customers and this ultimately might be where the market is headed. We will certainly continue to follow this epic “Storage Wars” saga in the quarters to come!
Tags: EMC, ntap, SOX
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…There Is No Spoon
Unni NarayananFriday, July 24th, 2009
In the “Matrix” movies, human-kind was fed a sensory virtual reality while in actuality serving as a giant, multi-celled battery to run a post-apocalyptic world ruled by machines. It was an entertaining two-hours and you’ll recall the “Aha!” moment in the first film when the bald kid with the spoon schools Keanu Reeves about manipulating the virtual world. “Do not try to bend the spoon. That’s impossible. Instead, only try to realize the truth…”
Come with me now to Matrix4, where a company that produces server virtualization software – call it VMW – undertakes to impose its own virtual reality onto the marketplace via an earnings conference call. You be Neo. I’ll be Morpheus. Remember how it goes? I say, “I’m offering you a choice. Take the Blue Pill and stay in the manufactured reality. Take the Red Pill and…” (more…)
Tags: VMW, VMware
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Wall Street’s Embrace a Precursor of Enterprise Acceptance
Unni NarayananThursday, July 2nd, 2009
Wall Street’s adoption of cutting edge technology has always been a precursor to broader mainstream enterprise acceptance. The reason is that financial firms — and trading companies, particularly — are comfortable with a higher degree of risk. As a result, Wall Street seems to gravitate to technologies at precisely the instant these technologies start to have favorable risk/reward profiles. There are numerous examples, ranging from Salomon Brothers’ aggressive utilization of higher end workstations like Sun in the 1980s to the Nasdaq’s implementation of its Supermontage system.
In this context, Ben Worthen’s June 29 story in the Wall Street Journal, “Remaking the NYSE’s Data Center” highlights a couple of interesting points: 1.) NYSE CIO Steve Rubinow states the exchange is utilizing a best-of-breed approach. This is consistent with where the data center design is headed. For example our checks at Primary Global Research indicate no single vendor is going to “own” a vision for cloud computing. It is more likely that cloud computing architectures will organically unfold as IT managers (as in the case with the NYSE) piece together an optimal solution; 2.) That the vendor list includes Juniper, Ciena, and Voltaire is notable for several reasons. First, there is the obvious non-mention of Cisco, which is part of a broader statement that competitors are closing the gap. But, more interesting is the revelation that NYSE’s design uses optical networking products (Ciena) and will implement Infiniband (Voltaire). Infiniband has been relegated to the high performance computing niche (think Livermore Labs, etc.) for years. Perhaps these technologies are at inflection points where we might see more widespread usage.
Although many enterprises do not push the envelope in a manner that requires the “renting of space” for proximity reasons in the data center, one thing remains clear: demand for performance and bandwidth remains unfulfilled and numerous emerging technology companies are finally in an attractive sweet spot to address these challenges and reap the rewards.
Tags: Ciena, Cisco, Juniper, Voltaire
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Intel: Mis-steps, Milestones, and Money
Unni NarayananThursday, June 11th, 2009
In 1998, I moved to the Silicon Valley and accepted a position with Intel. I recall telling a good friend’s father, an old time valley engineer, that I was going to start work with the famous microprocessor company. He took a deep breath, looked side to side, and after a lengthy dramatic pause, decisively said “They’re the only game in town.” It turned out at the time he was not exactly right. Several factors conspired over the next few years to significantly erode Intel’s pre-eminence and fat margins - notably AMD’s successful execution around a low cost microprocessor, Intel’s own mis-execution of its 64 bit strategy, and countless other mis-steps that were exacerbated by the dot-com bust.
Since that time, Intel has morphed into a bloated organization, anchored down heavily by negative publicity around anti-trust law suits, and overwhelmed by one of the worst global economic cycles anyone can remember. When I look at Intel’s stock price, I cringe when I realize that my 1998 options actually had a strike price that was higher than today’s trading range. And yet, I believe now more than ever - my friend’s father is correct “Intel IS the only game in town”. What makes me think that? Well, last week Fred Pollack, retired Intel Fellow, spoke at our First Technology Conference and he made a very convincing case.
Let me summarize Fred’s analysis in one sentence “Intel only loses when AMD has a competitive CPU microarchitecture and when it is less than 6 months behind Intel on process technology.” Fred basically argued that the conditions for AMD to achieve these milestones were highly unlikely and depend upon some major screw-ups from Intel.
Now Fred knows what he is talking about - after all he was Chief Architect of the original Pentium Pro chip and is up to his neck in industry accolades. But, let’s dive into the merits of his argument (and not his resume). Consider three segments of the market: (1) Server (2) Desktop and (3) Mobile. In the server segment, Fred expects Intel’s Nehalm-EP/EX to eliminate AMD’s DP platform advantage. On the desktop, Pollack noted that several Intel processor variants outperform AMD’s Phenom II (Shanghai) when run at the same clockspeed. And, then on the notebook side - he observed that Intel already has offerings ahead on the process technology curve. He buttressed that last point by noting that Intel was a year ahead on 32nm offerings with product coming out of Intel’s fabs in Q4 of this year.
In other words, Fred believes that it is Intel’s game to lose and that they aren’t going to let that happen again. Specifically, Intel is employing a “Tick/Tock” design strategy where microarchitecture designs are being alternated between two teams (in Haifa, Israel and Hillsboro, Oregon). And, so if you think there is going to be a PC/Mobile boom in 2010 (and 99% of the world thinks that) - there is only one table open at the casino and Intel is the dealer. Ladies and gentleman, exchange your cash for (micro)chips and let the game begin!
Tags: AMD, Intel
Posted in Semiconductor, Technology, Unni Narayanan | No Comments »