Global Storage Systems 3Q23 revenue still depressed YoY at 19%

Data from Omdia’s latest Data Center (DC) storage revenue tracking has revealed that DC storage external systems decreased 19% year-over-year (YoY) to $13.3 billion but increased 5% quarter-over-quarter (QoQ) in the third quarter of 2023 with the expectation of stronger upward moves in the coming year. 

In 3Q23, DC storage revenues continued to track lower relative to last year’s robust shipment levels. Even as Omdia reported improving third quarter QoQ storage results, the reality of this quarter’s tracking indicates that 2023 results will not come close to last year’s revenue levels. For 3Q23, traditional enterprise storage revenues were down 13% YoY, and the cloud services provider (cloud SP) segment were down about 26% YoY according to Omdia’s tracking. 

It’s a bit of an enigma as to why storage shipments have remained depressed for so long. While economic uncertainty and related budget constraint issues from earlier in the year could be blamed, much of that is behind us now, especially in North American markets. Additionally, there had been a bunch of built-up storage capacity that needed to be burned down, but that also seems to have run its course. It appears that a primary cause of the persistent storage decline is probably due to cloud services markets reaching a stage of growth maturity where they need to exercise more control over their expenses, and therefore are delaying storage spending. There has also been a euphoric shift in cloud spend towards expensive GPU investment to the detriment of storage investment. 

The heavy investment in AI, while in the long run being good for storage, right now seems to have the market confused as to what types of storage to invest in. The early phase 1 models have been trained and for the next phase, it is possible architects are investigating using low-cost quad level cell (QLC) based solid state drive (SSD) and maybe even one of the emerging new file systems meant to accelerate data set creation. Hard disk drive (HDD) has been the mainstay for storing the petabytes of data collected for analytics into data lakes, but with the significant drop in SSD pricing, high-capacity SSD is starting to look like an interesting alternative. Omdia estimates a 33% drop in DC SSD average selling prices (ASPs) for 2023. Admittedly, the global economic landscape is still playing a role in negatively shaping business investment in storage as on-going global economic challenges have contributed to the cautious storage investment approach many still seem to be taking. 

Enterprise vendor external storage results, by company

• The group of original design manufacturers (ODMs) working directly with cloud infrastructure buyers to provide white box storage dropped over 8.3 percentage points in share, accounting for 32.2% of market revenue.
• Dell EMC, the largest single vendor in the storage market with 20% of total revenue, took back over 1.2 points from the same quarter last year.
• Huawei ranked third in vendor revenue, even in the face of difficult economic conditions in China. It took 7.9% share and was one of the market’s bright spots with an 8.8% YoY increase.
• Lenovo did well again, up 57% YoY in 3Q23 revenue. Hitachi also improved, up 7.8% YoY in 3Q23 after reworking their offerings to move more towards the mid-range of the storage market. 

Investment into storage innovation appears to bode well for its future 

Omdia expects the outlook for storage shipments to improve for 2024, as storage systems are the backbone of data management and reinvestment in them can only be scaled back for so long. Digital transformation, AI modelling and inferencing are predicted to put storage purchases back on the upswing for many years to come. Even though the growth of cloud computing has slowed, it's crucial to realize that cloud services growth is still anticipated to occur at a robust 10%, 5-year rate. Thus, cloud growth will keep driving the need for additional storage above and beyond the market for upgrades or replacements of storage. As we near the end of this recent slowdown, the ecosystem for storage innovation and adaptation has remained very strong. This bodes well for storage markets going forward, as storage system providers are now exploring new avenues, such as unstructured data management solutions, improved cyber security features, and high-performance scalable filesystem approaches, to reignite interest and reverse the current market decline.

Additional highlights from the Omdia DC Storage report include:

• Array storage revenue decreased 18% YoY in 3Q23, with capacity-optimized HDD-based storage continuing to take the biggest market hit.
• The all-flash array category revenue lost 2.8% YoY in 3Q23, where this decline was due to a large array ASP drop, since unit shipments were up.
• All regional revenues declined with North America 26% YoY, EMEA 19%, and Asia & Oceania 8% in 3Q23 with the cloud market decline really hurting North America storage.

Further storage information to read 

• Omdia’s Data Center tracking finds Storage Systems revenue YoY decline continues 14.2% in 2Q23

• Primary storage cyber protection solutions to thwart ransomware

To read more insights and analysis covering market trends and industry forecasts prepared by Omdia’s Cloud and Data Center practice, click here.