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Suppliers for PCIe flash cards are stepping over each other

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March 7, 2013

It's no secret anymore that PCIe flash card vendors are falling all over each other in an effort to grab as much market share as they possibly can. But there's simply too many of them for a commoditizing hardware business, and they might even be shooting themselves in the foot while they are fighting with each other.

At last count, there are no less than fifteen suppliers of PCIe flash cards-- small hardware devices that tightly couple a whole slew of non-volatile NAND storage to a server's backbone: EMC, Fusion-io, IBM-TMS, Intel, LSI, Micron, OCZ, OWC, Samsung, SanDisk, Seagate-Virident, STEC, SuperTalent, Toshiba, Violin Memory and Virident.

This can't last for much longer. As with the development of the disk drive industry, the winners will be those with flash foundry connections, good software and a strong distribution channel.

And additional software that is specialized is also needed to make full utilization of that close coupling of flash and of RAM cache.

Once the server retrofitting marketplace settles down from its initial rush, PCIe flash will surely become a standard part of every server and the suppliers' distribution channels. That means the market power will lie with the flash foundry operators as they lock up the system manufacturers' channels.

A software angle could be the link between server PCIe flash and backend arrays, be they all-flash or hybrid flash-and-disk. This will surely become an absolute necessity for standalone storage suppliers such as EMC and NetApp.

Here is a quick-and-dirty rundown of PCIe flash card suppliers and their alliances:

  • EMC - a potential powerhouse but it must link its software to backend arrays as soon as possible or server makers could freeze it out.
  • Fusion-io - software is the key and Fusion-io already knows this.
  • IBM-TMS - we're still waiting for IBM to add TMS flash to its servers and get busy on software driver front.
  • Intel-Micron - it owns foundries, has distribution channels and it's getting software.
  • LSI - no foundry link-up but potentially has a good distribution channel although it needs software.
  • OCZ - no foundry link-up and in crisis.
  • Samsung - can sell PCIe flash on the back of memory and flash chips to system manufacturers so it's potentially strong - but it needs software.
  • Seagate-Virident - needs a flash foundry tie-up and that could be Samsung.
  • STEC - its high-flying SSD business stalled, although it's now recovering, but it has no foundry tie-up so question marks remain.
  • Toshiba-SanDisk-Violin - a potential powerhouse.
  • There are five companies in the list above that seem better placed than the others, and the others better get big, find a niche or get out while they still can.

    In other IT and server news

    EMC says it has lost about $500 million dollars on its VCE joint venture, the converged server-storage-networking business it founded with Cisco, VMware and Intel four years ago.

    VCE makes vBlocks, bundled Cisco servers and network switches, EMC storage and VMware's hypervisor, which are packaged as single systems instead of four separate components, thus being much easier to buy, install and operate than equivalent systems built from separate components.

    Stifel Nicolaus analyst Aaron Rakers has been looking at an EMC 10-K SEC filing for 2012 and writes: "EMC has invested a cumulative $676.1 million in the VCE joint venture since its inception in 2009, as well as $13.9 million in stock-based compensation, totalling about $690 million. EMC continues to own 58 percent of VCE’s outstanding equity. EMC’s consolidated share of losses was approximately 63.2 percent in 2012 (vs. ~63.2 percent 2011 and 58 percent in 2011). EMC’s accumulated net losses from VCE have totalled $498.2 million."

    That's near enough $500 million dollars. As for VCE as a whole, Rakers writes: "This would imply total VCE losses at approximately $387.5 million in 2012, up from $331 million implied total VCE losses in 2011."

    He added that EMC recognized about $285.8 million in total sales from products and services to VCE in 2012 (vs. $133.9M in 2011). EMC and Cisco recently announced that the VCE partnership has reached $1 billion in annualized demand.

    EMC's 10-K form further ststes: "The losses recognized from the joint venture exclude our consolidated revenues and gross margins from sales of products and services to VCE, and any additional related selling expenses. "Our 2012 other income (expense), net primarily consists of our consolidated share of the losses from our converged infrastructure joint venture, VCE Company LLC, of $244.9 million."

    And it goes on to say: "So $285.8 million in sales to VCE and $244.9 million in losses from VCE in 2012, making a net $40.9 million profit or surplus."

    Unless our accounting math and understanding is way off-center, VCE - cumulative losses not withstanding - looks a good business for EMC. But the question is, how long can it sustain it?

    In other IT and hardware news

    Microsoft has been fined US $731 million by the European Commission after it violated an agreement to offer Windows users alternative web browsers to Internet Explorer.

    A new investigation was launched against Microsoft by Brussels' competition officials in mid-2012 following several complaints that the software giant was still using its Windows operating system to push people into browsing the web with Internet Explorer instead of competing browsers such as Firefox and Google's Chrome.

    Microsoft signed a legally binding agreement with the commission that required the company to display a choice screen in Windows that allowed customers in Europe to pick between using IE, Firefox, Chrome and other browsers on the market.

    The dialogue box was supposed to remain in the operating system until 2014. But in February 2011, when Microsoft issued its first Windows 7 service pack, the selection screen suddenly vanished from the software.

    Source: LSI.

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