Image: Mark Lewis
Chitose Suzuki  /  AP
Mark Lewis, EMC executive vice president and chief development officer in a laboratory of EMC, Corp., a data storage company in Hopkinton, Mass. From teens' bedrooms to corporate data centers, society is demanding ever-greater amounts of information, and easier ways to find it and back it up.
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updated 7/2/2006 1:09:43 PM ET 2006-07-02T17:09:43

Despite a relentless slide in the cost of keeping electronic information, executives at companies that store data for the business world say they expect to keep making money.

The reason? Look no further than what’s happening in millions of homes around the world, they say.

Just as businesses are building ever-larger databases and searching for new ways to manage the flood of information, consumers are storing all their music, photo and massive video files — and seeking better ways to organize it all.

They can do it because technological advances have enabled ever-greater amounts of information to be packed more densely into a given amount of disk space, at little extra cost to storage suppliers. That has increased capacity and made it far less expensive to keep big files.

“Ten years ago, a 1-gigabyte disk drive was a really great thing,” said Bob Schultz, senior vice president and manager of Hewlett-Packard Co.’s StorageWorks division. “Last Christmas, I bought a 1-gigabyte memory stick for my daughter’s camera. I suppose it cost $5,000 a decade ago for that disk drive, and I think the memory stick cost me $50.”

From home offices to corporate data centers, society is demanding ever-greater amounts of information, and easier ways to find it and back it up.

The data storage industry is seeing rising demand from several areas: Growth in mobile computing has increased reliance on centrally stored data that can be accessed remotely; natural disasters have persuaded corporate customers to back up data at multiple sites; and new data storage markets are emerging in places like Asia and Latin America.

Government and legal record-keeping requirements also are expanding as more work is done via e-mail and instant messaging; storage-intensive video data are more common, from security camera footage to movie downloads; and inventory-tracking radio-frequency tags are creating new tidbits to archive.

At Boston’s Beth Israel Deaconess Medical Center, a switch from film to digital medical images such as for mammograms has helped drive a 100-fold increase in the amount of information stored at the hospital’s data center over the past five years, said John Halamka, chief information officer for Beth Israel and two other Boston-area hospitals.

The three hospitals’ storage budget of $2 million has risen at a far slower rate, because new hardware is increasingly efficient at storing large amounts of information at lower costs. At the same time, ever more information needs to be preserved, he said.

The growing demand to store seemingly anything is a key reason why the storage industry is spending more on acquisitions and research — even though the prices that data firms can charge for supplying increasingly efficient and higher-capacity storage hardware continues dropping, just as prices for computers have fallen relative to the amount of information they can process.

While it costs less for the industry to supply a given amount of storage capacity, the resulting drop in prices has drained hardware revenue and challenged bottom lines.

So data storage firms are relying not only on storage capacity to drive profits, but also services and software that make the flood of data easier to sort through and keep secure.

“If I only have hardware and I just keep helping make you more and more efficient at less and less cost, eventually I’m going to hit a wall and it’s going to be tough for me to make money,” Joe Tucci, the head of leading storage vendor EMC Corp., said in a recent interview.

The trend is also apparent with consumer storage: It costs less than two-tenths of a penny to store a typical song download of 3.9 megabytes, which would have cost more than $7 to store in 1992, according to John Rydning of technology research firm IDC.

Hopkinton-based EMC shipped customers more storage capacity per month last year than it did in all of 2000, and projects such growth to continue.

The trends are industrywide, affecting EMC and more diversified rivals including HP, IBM Corp., Hitachi, Dell Inc., Sun Microsystems Inc. and Network Appliance Inc.

“It’s kind of phenomenal,” HP’s Schultz said. “You get to these numbers where people say, ‘Gee, in the next three years we’re going to ship as much capacity as we shipped in the whole history of the industry.”’

But because of dropping prices, storage hardware sales provided only about 38 percent of overall industry revenue last year, compared with more than 50 percent in the late 1990s, according to IDC. The rest of the revenue comes from software and services.

IDC forecasts storage capacity shipped to customers worldwide will rise around 50 percent annually through 2010, with revenue from that hardware increasing 3 percent, to about $30 billion.

Such modest revenue projections have left Wall Street skeptical that the industry can return to the big profits it enjoyed when technology spending surged in the late 1990s.

Declining prices are one reason EMC’s stock has remained flat for nearly three years, despite 11 straight quarters of double-digit revenue growth and profits that rose 30 percent last year.

“Pretty much everyone in the industry has faced this pressure,” said Erick Maronak of Victory Capital Management, an EMC investor.

Industrywide profits are difficult to measure because HP and IBM offer a vast range of products and services beyond data storage and don’t break out storage financial figures.

To offset dropping storage prices, EMC has spent $4.5 billion to acquire storage software and service firms and about $3 billion on research and development over the past three years — huge investments at a company that recorded $9.7 billion in sales last year. On Thursday, EMC made another big move, announcing a $2.1 billion acquisition of Bedford-based RSA Security Inc. to improve the level of security in its storage technologies.

Sun last year expanded its slice of the business by acquiring Storage Technology Corp. for $4.1 billion, and HP has made two recent storage acquisitions.

Although plunging storage prices have challenged the industry, they also have expanded the industry’s pool of customers. Lower costs have allowed medium-sized and small businesses to build huge databases once affordable only for banks, airlines, retail chains and government agencies, which were largely alone in fueling the storage industry’s early growth.

The technological advances also have ushered in a new way of thinking about data storage by corporations and consumers, said Mark Lewis, EMC’s executive vice president and chief development officer.

Years ago, anytime Lewis bought a new home computer he carefully went through his old computer’s files to see which ones were worth saving on his new PC and which ones would unnecessarily take up hard drive space.

These days, he just moves everything from his old PC to his new one.

“I don’t even bother to try to delete any information,” he said. “I might need it.”

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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