Navigating the IT Infrastructure Sales Paradox

Solution providers in the channel that resell servers and storage systems are dealing with something of a paradox these days. Total shipments for servers for the first time in recent memory have increased. International Data Corp. (IDC) reports that worldwide server shipments increased 1.9 percent year over year to 2.45 million units in the second quarter of 2017. Server revenue increased 6.3 percent in the same period. Much of that growth can be attributed to the availability of a new generation of Xeon processors, dubbed Skylake, that helped lift most proverbial server vendor boats.

But while server shipments are increasing, there doesn’t appear, as of yet, to have been a corresponding increase in storage systems. IDC reports that while overall storage sales are up, most of that is being driven by hyperscale data center environments. IDC reports sales of server-based storage actually declined 13.4 percent during the quarter, accounting now for $2.9 billion in revenue. External storage systems remained the largest market segment. But $5.3 billion in sales actually represents a decline of 5.4 percent year over year.

Obviously, any market measured in billions is still a big opportunity for the channel. But given the decline in sales of traditional on-premises storage sales, it turns out that IT vendors are pulling out all the stops to make sure they increase high-margin storage sales whenever possible. For example, Cheryl Cook, vice president of global channels and alliances for Dell EMC, says the company has added a variety of special channel programs that include everything from incentives for channel sales people to increased rebates for attaching storage to a server sale. In the case of Dell EMC, that latter initiative is critical because while the company’s share of the server market has increased, it actually lost ground in storage sales. To reverse that trend, Dell EMC has recruited some former EMC executives to focus on storage sales via the channel.

Every major storage vendor, with the exception of NetApp, lost market share to “other” in the latest IDC report. The other category grew in share from 7.8 percent in share year over year to account for 29 percent of the market. NetApp grew 17 percent to claim a 13 percent share. In contrast, Dell has a 28 percent share, a 22 percent drop year over year, while Hewlett-Packard Enterprise (HPE) has a 12 percent share, representing a 9 percent share. Clearly, the dynamics in the storage segment of the IT industry are changing dramatically. Sales may be flat overall, but it’s clear that smaller storage vendors are inflicting some pain on their larger rivals.

It remains to be seen just how permanent these shifts in share might become. But for companies that have bet their futures on being able to combine server and storage sales to drive smaller rivals out of the market, the latest IDC numbers can’t be viewed as anything other than a setback. The good news for channel partners is that more money and resources will be poured into storage sales. The bad news is that anxiety surrounding storage sales is definitely starting to increase.