Networks Driving Data Storage Growth

The networking subsector grew by twice as much.
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SAN FRANCISCO -- The generally staid market for data storage is starting to quake as tech titans wrestle for a share of this fast-growing tech sector.

Storage firms are seeing demand for their wares increase as more companies use storage networks rather than standalone units. These networks are replacing the typical arrangement of having an individual storage device back up a single server so data is accessible even if a server fails.

Storage networks are also gaining popularity among companies using virtualization software to improve the efficiency of their servers.

In the second quarter of this year, the networked storage subset of the data storage market grew 13% to about $3.1 billion, more than twice as fast as the total storage market, according to data from IDC.

"We're seeing a strong shift to the networked concept of storage," says Vasu Kasibhotla, an analyst with asset manager Trilogy Global Advisor. "We expect that trend to gain moment in next few years."

Trilogy is a long-term investor and owns shares of

EMC

(EMC)

,

IBM

(IBM) - Get Report

and

Dell

(DELL) - Get Report

, three of top five vendors of storage appliances.

Several big boys of the data storage market saw their market share erode slightly as new competitors turned on the heat in the second quarter.

EMC and

Hewlett-Packard

(HPQ) - Get Report

held onto the two top spots in the market for network attached storage, according to IDC.

But IBM and Dell chipped away at their lead and were the only two companies among the industry leaders to make incremental gains in market share.

Dell is a relative newcomer in the storage market, while IBM has been aggressive in designing products for virtualized environments.

Shares of IBM were recently trading down $1.93, or 1.6%, to $115.69 amid a broad downturn in the markets. Dell shares tumbled $1.28, or 4.5%, to $27.18.

EMC's subsidiary

VMware

(VMW) - Get Report

has become the face of virtualization. Many storage vendors are making their products compatible with VMware's virtualization software, says Nesbit.

Data storage for virtualized server environments still accounts for a small portion of total sales for these companies. Estimates for the proportion of servers that are virtualized range from 2.5% to 4% of the roughly 25 million servers in operation around the world.

But virtualization is gaining speed. VMware's revenue rose 82% in 2006. Analysts and investors are betting that sales of storage equipment will rise in tow.