The Midgets, The Mammoth, And The Mainframes

Mainframe disk drives. In an age when the computer industry increasingly champions networks of blazingly powerful desktop machines, the words smack of musty obsolescence. Nonetheless, here it is 1993, and the market for mainframe disk storage equipment suddenly seems more frenetic than ever. On May 20, market leader Adstar, a subsidiary of IBM, tripled the storage capacity of its 3390 disk drive and hinted at a broad range of new products to come. The same day, Storage Technology Corp. agreed to shell out $75 million in stock for Amperif Corp., a potential competitor in an emerging technology called disk arrays. And on May 25, Hitachi Data Systems upped its pressure on IBM with an all-new line of high-performance mainframe disks.

There's no doubt that sales in the overall mainframe market are shrinking--and with them mainframe disk revenues. Worldwide sales of IBM-compatible mainframe disk equipment will drop to just $5.1 billion this year from a high of $7 billion in 1990, reckons market researcher International Data Corp. Of course, that's still a healthy piece of change for any company. And gross margins of as much as 60% are nothing to sneer at.

Just ask IBM. Suddenly, it is facing a host of hyperaggressive rivals in a franchise it once had nearly for itself. Indeed, IBM has actually lost 17 points of the 85% market share it held just four years ago. The reasons: inattention to increasingly specialized market segments and loss of technology leadership--exactly the same problems that have bogged down much of the rest of Big Blue. During the same period, meanwhile, competitor Hitachi has more than doubled its share, to 20%. Its gain comes from highly reliable drives sold through a joint venture with Electronic Data Systems Corp. Then there's EMC Corp., virtually unknown in IBM mainframe circles a few years ago. Today it is a Wall Street favorite, with net income projected to grow 137% this year, to $68 million.

To fend off such rivals, IBM's new products will have to make up a lot of lost technological ground. Especially in disk arrays: Just as the microprocessor is sweeping most traditional computer designs out of the market, the bulky mainframe disk is now giving way to the same small drives used in desktop computers. By ganging together scores of such drives under the control of a powerful computer, disk arrays promise to outperform conventional drives in almost every test--from price to performance to floor space. Officials at IBM's Adstar say they hope to have a mainframe disk array, designed for high availability of data, ready to ship by March, 1994.

OVERLY AMBITIOUS? In years past, rivals would have waited to see IBM's version of such a radically different product before trying to reverse-engineer their own. But customers have become more willing to try out unique mainframe devices, such as the automatic tape library that StorageTek has turned into a $1 billion business. Another is the Symmetrix disk array sold by EMC, of which more than 2,000 units have been sold so far. The device actually carries a higher list price than the IBM gear it replaces, says CEO Michael C. Ruettgers, but by dishing out data at higher speeds it can help IBM mainframes do some big jobs twice as fast. "We have a two-year lead over IBM today," he says.

The most visible attempt to outgun IBM with array technology is StorageTek's Iceberg project. Fortunately for Big Blue, though, it remains more promise than reality. When formally launching Iceberg early last year, StorageTek said it had orders in hand for 170 units, which helped drive its stock from 38 to 76. But development problems have delayed shipments repeatedly since then, leading angry investors and analysts to wonder if Iceberg may not miss its ambitious technical and financial goals. "Iceberg's window of opportunity is rapidly closing," says Robert S. Schafer, who tracks large computers at Meta Group, a consulting firm.

That's one reason StorageTek made its move to acquire Amperif. The Chatsworth (Calif.) company has been working on its own mainframe array called Viking, which Schafer and others believe could outperform Iceberg in certain areas. Buying Amperif eliminates a potent competitor and ensures a worthy replacement should Iceberg ultimately melt down. That's not likely, insists Gregory A. Tymn, StorageTek's chief financial officer. Iceberg is on track for initial field testing late this year, and he says it "does not overlap tremendously" with Viking.

Hitachi Data Systems, the Hitachi-EDS joint venture, has no array on the market either. But in a recent six-month period, its conventional disk products won more than 200 new customers, says Gary Holtwick, vice-president of marketing for storage. And its new drives use one-third the floor space of IBM's.

So the pressure on IBM continues to mount. "We have some catching up to do," concedes Ed Zschau, the former congressman hired as Adstar's CEO last April. With only a month on the job, that's about all he feels comfortable saying about IBM's competitive position in mainframe disks. Given the competition, Zschau is clearly going to be paying close attention in coming months.

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