Market Watch (Summer 2004)

By Linley Gwennap

Over the past several years, networked storage has gained acceptance in large corporations as a way to manage hard drives and other storage devices more easily, and to use them more efficiently. Even with the recent economic downturn, the growth in the storage industry has barely slowed. Typically implemented as a storage area network (SAN) based on Fibre Channel (FC) technology, this method has resulted in tremendous growth for companies such as Emulex and QLogic that supply FC components.

This rapid growth has created a market driven by a few board vendors charging premium prices. Emulex and QLogic, for example, have gross margins approaching 70 percent and equipment vendors such as EMC charge several dollars per gigabyte of storage, 10 times the cost of basic hard drives. The storage market, however, is about to undergo a transformation.

Fibre Channel competition

The Fibre Channel standard was developed as an easy way to move data to and from SCSI hard drives, making it ideal for a storage network. Because FC is rarely used outside of the SAN, and because of the initial low volume of SAN devices, FC host-bus adapters (HBAs) were very expensive at the outset.

Corporations were willing to pay these high prices, however, due to the savings realized by using a SAN. In a large company, for instance, it can cost more than $20,000 in lost productivity when a server must be rebooted to add more storage. Networked storage avoids this cost by sharing a large pool of storage among many users.

Unfortunately, as the manufacturing cost of HBAs fell over time, the HBA vendors did not pass the savings along to their customers. With only two major HBA suppliers in the industry, there was little incentive to reduce prices.

However, more companies have now entered the HBA market, thus increasing price competition. These companies are providing FC controller chips and the firmware, as well as the boards, and making it easy for third-party vendors such as ATTO Technology, Inc. (Amherst, NY), to enter the FC HBA market. We expect these new vendors to put pressure on the market leaders to lower their HBA prices.

According to the IDC, FC HBA prices fell from about $800 per unit in 2002 to below $700 in 2003. We expect this trend to continue further, with HBA prices falling below $300 by 2007. This decline will encourage greater deployment of storage networks, but HBA vendors will see a reduction in profitability as well. Ultimately, the decline will cause FC HBA revenue to growth to stall, with total revenue topping out around $800 million in 2005, compared with about $650 million in 2003.

Other vendors are also seeing an opportunity to reduce HBA cost by bypassing the expense of Fibre Channel. A new standard called iSCSI allows SCSI data to travel over any TCP/IP network. This method allows storage accesses to use the existing Ethernet LAN instead of a separate FC SAN, reducing wiring, switching, and management costs. In addition, iSCSI packets can be sent over the Internet (WAN), allowing remote sites to be included in a single virtual SAN.

Figure 1: IP storage adoption trend. (Source: IDC)

iSCSI On the Rise

Because of these advantages, we expect iSCSI to displace FC over time. Although iSCSI HBA shipments were small in 2003, they are projected to surpass FC HBA shipments by 2007. The growth in HBA shipments will also create demand for iSCSI switches and bridges. (see Figure 1)

Cisco is a major proponent of iSCSI, seeing an opportunity to shift storage traffic to the LAN, where the company’s product line dominates the market. But iSCSI is opening the door for other vendors to enter the storage market. For example, several startups are developing storage processors that provide hardware acceleration for TCP/IP and iSCSI. These startups include Astute Networks, Inc. (San Diego, CA), iVivity, Inc. (Norcross, GA), and Silverback Systems, Inc. (Campbell, CA).

Silverback offers an inexpensive device that performs full TCP/IP offload for two Gigabit Ethernet ports at a cost of just $150. Astute’s initial product offers 10Gbps of TCP/IP offload plus additional storage-management functions. Upping the ante, iVivity aims to deliver 20Gbps with its first chip, due in the second half of 2004. Both of these high-speed devices demonstrate impressive technology, but are too fast for most applications today.

System vendors can enter the iSCSI market more easily than the FC SAN market. The basic interconnect uses commodity Ethernet components. These chips can be combined with a storage processor and other off-the-shelf devices to create an iSCSI HBA, switch, or iSCSI-to-FC bridge. Most storage-processor vendors today even provide the firmware for many common storage applications, while allowing the customer to add functions by modifying the firmware.

Commodity storage systems

Change is also coming in storage subsystems. These units combine a series of hard drives, often in a RAID configuration, to create a highly reliable, high-performance storage array. Enterprise-class storage arrays use Fibre Channel to connect the drives to the array controller, because ATA and SCSI have lower performance and cabling problems.

Recently, hard drives have begun to transition to serial ATA (SATA) and serial SCSI (SAS). These serial interfaces increase performance while simplifying the cabling between drives. As a result, commodity drives can now be used to build storage arrays with nearly the same performance and reliability as Fibre Channel, but at dramatically lower cost.

These arrays can be attached to either FC or IP SANs. Aristos Logic Corporation (Foothill Ranch, CA), a spin-off from Western Digital, offers the FibreSlice chip, which is a single-chip controller for a Fibre Channel storage system. The chip offers one 2Gbps FC port to connect directly to the SAN and two additional ports that provide redundant connections to FC hard drives. Alternatively, startup iStor Networks, Inc. (Irvine, CA) targets iSCSI instead, providing a storage processor and a complete reference platform for a storage controller that uses up to 16 SATA drives.

System manufacturers can use the Aristos or iStor chips and software to quickly develop high-performance storage-array products. The Aristos design targets the large existing market for FC storage, whereas iStor’s design can be used to build an inexpensive storage array that competes with far more expensive FC products.

In summary, growth in the storage market and the emergence of new standards is creating opportunities for new chip and system vendors, which will ultimately provide more choices for the customers. The competition will drive down prices and allow continued unit growth as more medium and large companies adopt storage networking as a solution to their data needs.

Linley Gwennap is founder and principal analyst of The Linley Group and co-author of “A Guide to Storage Networking Silicon” (see www.linleygroup.com/npu).