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The OEM/Storage Vendor Paradigm Is Changing; OEMs Beware

By - Source: Toms IT Pro

Samsung announced it is feeding the ODM beast with several new all-flash reference designs, as it announced a new SAS JBOF (Just a Bunch Of Flash) and an NVMe scale-out reference system. This is yet another sign that the days of the clearly defined delineation between the OEMs and the storage manufacturers are over.

HDD vendors supplied system vendors and OEMs for decades, but the HDD manufacturers avoided entering the storage systems market themselves. There are numerous reasons why the HDD vendors avoided manufacturing entire storage systems, but the primary reason lays with the evolution of HDD manufacturers and OEMs. 

At first, there was an entire constellation of small HDD vendors, and these small companies did not have the engineering resources or funding required to penetrate the systems market. The winds of consolidation blew over the HDD vendors (similar to what we are witnessing in the flash space right now), and the number of HDD vendors precipitously declined. By the time the market was winnowed down to three primary HDD vendors (Seagate, WD/HGST, Toshiba) they were all reliant on entrenched and powerful storage system vendors as their primary customers.

It isn't wise to raise the ire of your largest customer, so the HDD vendors continued to play by the old rules and the world was happy -- until flash and the mobile explosion came along. A number of factors are leading to flash eroding the HDD vendors market, and the first (and often overlooked) reason is that flash enabled the mobile explosion.

Flash is powering the proliferation of increasingly powerful mobile devices, such as mobile phones and tablets, which would not be feasible with HDDs in their current incarnation. The resulting mobile boom is eviscerating the PC market, and the steep decline of PC sales is reducing the number of HDDs sold.

Flash is also attacking the performance segment of the datacenter, which has long been the HDD high-margin mecca. The combination of a declining PC market and the rise of SSDs in the datacenter have left the HDD vendors' earnings statements bleeding red. The HDD vendors are looking for a solution out of desperation, and the systems market presents a tantalizing target -- particularly because they own the considerable advantage on HDD cost.

Seagate led the attack with its Xryatex acquisition (an established systems vendor). Xryatex, and a few wise supplementary acquisitions, provides a quick segue into the systems market. It also allows Seagate to use the systems as a building block for its own cloud to challenge the likes of AWS and Google (as disclosed to Tom's IT Pro in an interview).

WD/HGST weren't far behind, and HGST announced the acquisitions of Amplidata and Skyera, and then rolled out its Active Archive Platform -- and the resultant Active Archive System. HGST positions its storage systems as a complementary to OEM's portfolios (OEMs can buy from them), but that isn't likely to appease the three-letter OEMs.

The HDD vendors led the assault, and now the flash vendors are sending in reinforcements. SanDisk rolled out its InfiniFlash platform and joined the ranks of those "supplementing the OEMs" (as opposed to competing with them). SanDisk also positions InfiniFlash for hyperscale applications, but that is hardly a consolation for system vendors. 

Samsung's announcement of its JBOF and NVMe reference systems is yet another sign of the changing times. It is tough for storage vendors to walk the tightrope of deploying storage systems without stepping on the OEMs' toes, and Samsung's tactic is to merely offer the systems as reference designs. Samsung manages the development of the systems and coordinates the various vendors, such as Mellanox and Qlogic for networking and Avago for SAS switches and expanders, but does not actually bend the tin themselves, instead leaving it to partners like Stack Velocity (a large ODM).

This sounds like a great idea to avoid raising the OEMs' hackles, but a cursory inspection of the recent IDC 2015 Q1 WW Quarterly Disk Storage Systems Tracker indicates that the ODM Direct and "Others" categories are eating away share from the established OEMs at an increasing rate. Granted, this report is for disk-based storage systems, but the principle that the OEMs are under duress from this segment is important.

Samsung's reference storage systems appeal to "ODM Direct" and "Others" simply because the company is arming them with a pre-qualified design that has all of the legwork taken care of by a larger storage vendor. Samsung is trying to keep its OEM customers happy, but in the end it is actually fueling the OEMs' most dangerous competitors -- and at a time when the OEMs are trying to entrench themselves in the all-flash arena. This also applies to the large All-Flash Array vendors that are Samsung customers; they surely aren't too happy with Samsung enabling a new class of competitors in the AFA market. 

Samsung is accustomed to shaking up the system, though; its entrance into the SAS space has been disruptive as well. The difference between SAS and SATA HDDs consists of physical components, and traditionally this resulted in a large price premium for SAS HDDs. However, with SSDs, the differences lie in the controller and logic, while the price of the underlying NAND media remains the same. Samsung is putting downward price pressure on the SAS SSD market because it sees no need to tack the extra cost onto SAS SSDs. Samsung is brutally competitive, thus upsetting the entrenched SSD vendors and the SAS premium-price model.

From a larger perspective, the number of system offerings from the HDD/SSD vendors is small, but it signals a willingness to trample on the old paradigm. It will not be long before the breadth of offerings expands. In the end, these moves are good for end-users because they reduce cost. The reference all-flash designs will place pressure on both the OEMs and AFA vendors.

It is also getting harder for the OEMs to discourage the storage vendors from entering the systems market. They cannot pull contracts and lash out at everyone. The large OEMs are under pressure from varying fronts; OCP (Open Compute Project), whitebox and ODM are all changing the dynamics of the market. The release of Samsung's reference architectures is yet another sign that there are no gentleman's agreements anymore.

The only answer for the OEMs is to continue to expand upon their software, services and support. The winds of change are blowing at hurricane force, and the OEMs will have to adjust their sails quickly to weather the storm.    

Paul Alcorn is a Contributing Editor for Tom's IT Pro, covering Storage. Follow him on Twitter and Google+.