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IBM and Hitachi join forces in basic hard drive technology endeavours

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With their joint announcement of 4 June 2002, IBM and Hitachi extended their co-operation in the storage sector, building on their agreement of the year before.

This agreement opens new possibilities. So far, it strictly covers only the design and manufacture of hard drives - but there is a public statement of intent to seek further areas of co-operation. The enterprise storage market has evolved - Hitachi Data Systems continues to build market share and IBM has shipped its 10,000th Shark storage subsystem. Both HDS and IBM are listed in the 2002 Red Herring Top 100 companies most likely to change the world - even before IBM's 'Millipede' announcement. In contrast EMC - once a company that took the whole storage sector by the scruff of its neck and changed its direction - continues to decline with quarterly revenues roughly half those of a year ago.

The 2001 agreement made the proprietary interfaces to IBM's and Hitachi's storage subsystems available to both partners. This greatly increased their relevance to the market, allowing independent software vendors to develop for both at the same time and also opening up a vista of a future common architecture. They continued to compete, and will do so in the future - as evidenced by IBM's continued development of Shark with "Silvertip". The agreement was an early sign of a major strategy change at IBM - coming shortly after IBM decided that virtualisation belonged within an overall concept rather than inside specific boxes like Shark. This years's announcement came several weeks after HDS previewed its new 9900 V products and its future adoption of the Storage Networking Industry Association's Common Information Model (CIM). IBM followed up with its own commitments to CIM and Web Based Enterprise Management (WBEM) in a detailed storage software 'roadmap', the Bluefin announcement, and the third generation of its Shark subsystem.

Virtualisation permits a common storage function to act as a backing store and repository for all of an organisation's data. IBM has traditionally been regarded as the world's most capable supplier at this level, delivering corporate level solutions to the largest users in the world. Its manufacturing operations, however good their technology, are inevitably being hit by the price wars raging in consumer electronics - the low margins now achievable in electronic manufacturing stand in sharp contrast to the more profitable software and services sectors. Against this background, IBM's reorganisation of Storage Systems Group along hardware vs software lines was a clear preparation for assigning these functions to those best equipped to deal with each. This ia a major strategic shift for IBM, and continues with the acquisition of Metamerge - a directory integration company - and the disposal of other manufacturing operations such as Mylex and Endicott

The choice of Hitachi as a high-level technology partner is no surprise. IBM and Hitachi have co-operated for many years, with the first major result being IBM's 3900 laser printers. Over the years, co-operation has become closer and closer - Hitachi built its Pilot series using IBM processor chips, and IBM's latest z800 mainframe is assembled by Hitachi using IBM technology. Hitachi also has an impressive reputation as a storage manufacturer dating back to the early 1980s - making it a natural choice as a hardware R&D and manufacturing partner.

IBM will now be free to concentrate its resources - investment and management time - on realising its Storage Tank concept. In principle Storage Tank has the potential to become as signfiicant as the original System/360 - a universal system for all enterprise storage needs. While Storage Tank has a sound strategic design, it is a major project and realising its potential will require significant investment; perhaps the lion's share of IBM's storage R&D budget.

There are other benefits for both IBM and its customers - the emphasis on support for heterogeneity in Storage Tank makes it a cross-platform solution, and this is relevant both in existing multi-vendor situations and across IBM's server platforms. IBM has committed to making source code references available, publishing the interfaces, and basing the system on Linux - where previous products such as Shark have been highly proprietary. For its own platforms, IBM can combine budgets that would otherwise have served only one into an effort that serves them all, and customers can commit to storage investment without regard for future platform decisions.

In a sense, the realignment now taking place among the niche SAN/NAS vendors has parallels in the early mainframe days. The IBM System/360 was announced with some thirteen storage products, each tailored to a price/performance tradeoff level within the storage hierarchy. It looked fine on paper - but no one exploited it because of its inflexibilty in response to business need changes. The ingenuity of system designers led to them finding ways to avoid using the expensive - in cost/bit terms - devices such as drums and head-per-track disks. By the early 1980s IBM was marketing only one mainframe storage device - the 3350, succeeded by the 3380 - and paying lip service to the storage hierarchy concept by occasionally selling a short string. "Balanced systems" replaced the storage hierarchy concept, and hardly anyone noticed.

The same is now happening in the SAN/NAS environment. Vendors of exotica - many of them financially extended or still burning venture capital - are finding that users design around the requirement for their products; bandwidth and capacity are much cheaper than expected and designs correspondingly simpler. Technology is becoming less important - the concept is starting to count. Storage Tank also represents a convergence of SAN and NAS technologies - most solutions even now use elements of both.

One area where the new company will dominate is intellectual property. IBM regularly tops the patents league tables with around three thousand new patents each year - 400 or so directly related to storage. Hitachi was 8th in the 2001 patent league tables with 1,271 new patents. At times both have also increased their portfolios by acquiring the patent rights of others - when National Advanced Systems sold ISS in the 1980s it retained the patent rights, which then passed to Hitachi Data Systems. EMC has also played this game; before selling Data General it floated a separate company - DG Patent Holdings Inc - to hold the patent rights and keep them out of the scope of reciprocal agreements it had with IBM. The IBM-Hitachi joint venture will take over both IBM's and Hitachi's hard drive-related patent portfolios. This transfer could effectively extinguish EMC's patent violation suit against Hitachi. Similarly, the joint venture's possession of manufacturing facilities within the United States would render the ITC investigation requested by EMC at the same time irrelevant.

It's often said that IBM stands for "I've Been Moved" - a reflection of the functional rotation that occurs within the company. The new joint venture will not suffer from this; its chief executive - Dr Jun Naruse of Hitachi - is a career disk engineer with an impressive record of achievements such as the sealed HDA disk drive marketed as the NAS 7360.

With the two competitors that caused it the most trouble last year now even better organised, EMC's situation is as bleak as it has ever been. None of the issues discussed last year has been addressed - the strategy of buying hard drives from the lowest bidder and wrapping enhancements around them starts to fail as the number of manufacturers selling at the factory gate dwindles. Despite all the comments about IBM's Storage Tank being late - it is a cohesive strategy with open commitments that users and other vendors can build on. EMC's software strategy looks opportunist, with the company apparently undecided which way to jump. A merger with BMC would produce interesting accounting issues - the two companies treat their software revenues very differently. As far as the ageing Symmetrix is concerned - in the short term, Fujitsu still needs a route to market for its high-end storage systems - marketing via the Amdahl services organisation is proving extremely ineffective.

EMC has to put its past behind it and align itself for the future. Although Dick Egan and his wife are no longer on the board, Egan serves as EMC's Chairman Emeritus and many of his legacies remain entrenched. His son is still on the board and is chairman of the Mergers and Acquisitions Cmmittee - his brother-in-law is chairman of the Audit Committee and also a board member. According to proxy statements, EMC makes use of a number of other businesses controlled by relations. Only very rarely does the talent required to run a major corporation appear in close members of the same family - the Watson dynasty being a major exception. Some changes are now being made - on 10 July 2002 HP leaked the story that it was losing Mark Lewis to EMC - forcing EMC to acknowledge James Rothnie's sidelining. A sudden and unexplained change of Chief Technology Officer is generally not a good sign in a technology-driven company.

Further changes are obviously necessary in EMC's internal forecasting procedures:

"Joe Tucci, EMC's President and CEO, said, The IT spending environment continues to be brutal. In fact, it got even worse at the very end of the quarter. Our third quarter was on track until late September."

Our concern relative to EMC is that once a company loses that sense of urgency, it can be very difficult to get back on track as shown by EMC's dramatic loss in market share.

Users making storage investment decisions should look to the medium term rather than the short, and the long term rather than the medium. IBM's commitment to openness makes hardware decisions relatively unimportant and price/performance will be key - but the selection of a storage strategy should be approached with care and a long-term view.

© July 2002 isham research

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