Flash Upstarts Could Upend the Storage Order

Chips from consumer devices have invaded corporate data centers
Steve Jobs introduces the iPod Nano on Sept. 7, 2005 Photograph by Kim Kulish/Corbis

The tiny chips that got their big break as components in the iPod Nano almost a decade ago are shaking up the $65 billion computer storage market. Spurred by insatiable demand for data analysis, companies such as Pure Storage, Tegile Systems, and Nimble Storage are adapting flash memory—the technology that stores songs in Apple’s compact music players—for use in corporate computer centers. These newcomers are using flash to create systems that are faster and use less energy than older, disk-based storage sold by market leaders including EMC, NetApp, and Hewlett-Packard.

Skullcandy, the Park City (Utah)-based maker of headphones, switched its data centers over to flash last year. “We’d reached the limit of what we could do with spinning disks,” says Brent Allen, Skullcandy’s information technology chief. Using Pure’s flash system, the company now gets updates eight times a day on customer and market information, up from once a day when it used only EMC and NetApp equipment. That makes it easier for Skullcandy to respond to changes in consumer demand, Allen says. “For us, it’s about analytics and getting it as up to date as we can.”

The history of flash dates to 1984, when Toshiba invented the technology. The chips, which retain data when a device’s power is switched off, were used in memory cards and USB memory sticks until graduating to wider use in the mid-2000s. Advances in the way the chips are produced have lowered their cost while bolstering their storage capacity to the point where they’ve become viable for big data centers. Sales of all-flash systems are growing by 58.5 percent a year and will reach $1.6 billion by 2016, according to market researcher IDC. Those of hybrid systems, which contain flash memory and traditional disks, will climb 21 percent annually over that period, to $12.3 billion.

Driving the migration to flash, in the form of so-called solid-state drives, is the desire by companies to put the explosion of data to use more quickly. From 2010 to 2013 the storage capacity of company data centers doubled, according to IDC. “There’s a big switch going on in terms of the IT infrastructure,” says IDC analyst Eric Burgener. The older storage technologies “cannot meet the performance requirements.”

EMC, NetApp, and Hewlett-Packard are mostly dependent on spinning magnetic disks, which require more energy and space, for their storage products. All three are branching out into flash, partly through acquisitions. EMC, the largest of the storage vendors, is projected to post sales growth this year of 5.8 percent, the slowest since 2009, according to data compiled by Bloomberg. NetApp’s revenue is predicted to remain stagnant in 2014, and Hewlett-Packard’s is on expected to decline.

EMC says it’s already selling products that meet customers’ new needs and is working on others that will put it ahead of the competition. It’s acquired three flash startups in as many years, including a deal for DSSD announced on May 5. “The challenge is that you’ve got to get on board with the disruption even if you’re cannibalizing your existing business,” says Jeremy Burton, EMC’s head of products and marketing.

Upstarts such as Pure don’t have to worry about sacrificing sales of their older products. “If we were part of one of the big incumbents, they’d want to constrain which markets and which customers we could go after,” says Chief Executive Officer Scott Dietzen. “As an independent, the whole world is our opportunity.” The five-year-old company’s sales grew 700 percent in 2013, according to Dietzen, and iun April it raised $225 million in funding from venture capitalists.

Not all flash newcomers are prospering. As more enter the market, price competition has picked up, and companies have had to come up with ways to differentiate their products. Nimble’s shares soared 62 percent in its market debut in December but have since fallen by about a third. Flash provider Violin Memory has lost almost two-thirds of its share value since its initial public offering last year, a slump that led to the departure of its CEO in December.

Pure and its young competitors will need rapid progress in converting customers to their flash products to exploit their early start, because cash-rich rivals are closing in. The flash startups “need a four-year advantage to be successful,” says David Scott, senior vice president for storage at Hewlett-Packard, which is designing a hybrid system. He says companies like his are racing to catch up, giving the newbies only two years or so to make their mark, which, he adds, won’t be enough time.