HP Reorganizes Storage Group, Addresses NAS-cent Market

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Event Summary

In March Hewlett-Packard announced it will reorganize its storage operations, consolidating into one division what is now six separate operations. The new organization will have Mike Matson as its acting general manager and vice president. Mr. Matson is also considered the lead candidate for the permanent position.

Within the new Storage Organization, the sub-groups will be:

  • Data Protection division, focused on tapes (DLT, DAT), and tape and optical libraries

  • Data Management division, focused on Storage Area Networks (SAN) and Network-Attached Storage (NAS)

  • Integrated Solution division, focused on software

  • New Business Development, focused on strategic and architectural issues

In addition to the organizational announcement, HP has announced the HP SureStore NetStorage 6000, its first foray into the NAS market. This NAS device is focused on the mid-range NAS market, providing raw capacity from 72 gigabytes to 360 Gbytes. The 5U (8.75-inch) unit is rack-mountable and offers redundant power supplies and hot-swap hard drives. It can be configured for RAID 5. Pricing will run from $25,000 to $52,000 per unit.

HP says it hopes to announce a high-end NAS device in the third quarter of this year. In addition to the NetStorage 6000, HP introduced an eight-port Brocade Fibre Channel Switch, as well as a desktop NAS/thin-server device, the SureStore AutoBackup. The AutoBackups will be available on May 1, with expected list prices of $4,500 and $10,000.

Market Impact

Although reorganizations can often be the result of clouded management thinking, we believe this will ultimately be a Good Thing for HP and its customers. The previous segmentation of the product line into six separate groups might have made sense at one point, but that time has clearly passed. We believe the structure of the new divisions makes sense, at least on the surface. As with most reorganizations, it will be more important to see how the divisions are "behaving" in six-nine months, after the dust has settled and people have figured out how they will operate in the new environment.

Although HP's storage system designs have been good, we believe they have (until recently) lagged the rest of the field vis--vis product offering. Their current Storage Area Network (SAN) is primarily a software solution, as compared with the full range of SAN products available from Dell and IBM.

The second part of the announcement relates to the recent joint effort with Procom to produce a Network-Attached Storage (NAS) solution (Refer to TEC News Analysis "HP Says When In Doubt, Buy It Out"). Until this point, HP has had limited offerings in SAN and NAS spaces. Production of the SureStore NetStorage 6000, combined with the high-end NAS solution slated to be announced in Q3, shows that HP is taking steps to change that. We expect Compaq and IBM to respond to this product with offerings of their own. (Normally we would expect Dell to respond, but their multiple NAS solutions are based on Network Appliance's NetFiler series, and there is little response needed when you already ship a top product.)

User Recommendations

There are two disparate events for the user to consider: the reorganization and the NAS offering.

The reorganization should be viewed with cautious optimism. The optimism stems from the focus on a more rational structure for the group. The caution relates to the inherent risks of a major restructuring - as discussed earlier, even an organization with HP's legacy of employee involvement and loyalty, the uncertainty created will be a distraction. It is up to HP management to minimize the turmoil.

Assuming management does its job well, the integration cycle and consequent disruption should be less than six months. The internal effects of any turmoil will be felt more in the development side, but the "ramping up" of the sales force will also create uncertainty, which customers will feel. HP will need to pay extra attention to the sales force to ensure the rapid growth does not compromise customer satisfaction.

The release of the HP SureStore 6000 should also be met with cautious optimism. HP tends to do a better job on products developed internally than on those bought from third parties. The choice of Procom for a partner is a curious one. The NAS market is growing, and Network Appliance (the current market leader) has nearly doubled its sales from 1998 to 1999, yet Procom's FY99 sales dropped by approximately 10%, and sales for the first half of FY 2000 have dropped by 35%. As recently as two years ago, NetApp and Procom had nearly equal sales figures.

Procom's serious underperformance relative to the market raises concerns that HP chose this partner based on price, not quality. This means that HP may need to expend more effort to have the NetStorage 6000 live up to HP's standards of quality. In short, we feel Dell/NetApp devices are safer near-term choices for companies wanting a NAS solution.

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