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By Noel Randewich
SAN FRANCISCO |
Wed Aug 3, 2011 3:07pm EDT
SAN FRANCISCO (Reuters) - Competition is brewing in the small but booming market for flash memory used in corporate data centers, and analysts foresee a wave of consolidation as larger players move in.
Giant tech companies from International Business Machines Corp to Western Digital Corp are sharpening their focus on lightning-quick flash storage, hoping to ride a resurgence in corporate IT spending next year and beyond.
They are taking closer looks at the cutting-edge know-how developed by companies like Fusion-io Inc, OCZ Technology Group Inc and STEC Inc, key players in software and controllers crucial for making solid-state drives work effectively in data centers.
"If I were the CEO of a large hard-drive maker I'd definitely be shopping," OCZ chief executive and co-founder Ryan Peterson told Reuters. "The market is ripe for consolidation."
Using solid-state drives made of NAND flash memory chips is expensive but is catching on with social media companies, banks and other corporate customers that value speedy and energy-efficient performance.
Corporations will spend some $4.5 billion on the technology in 2015, up from just under $1 billion in 2010, according to IT research house Gartner Inc.
That sharp growth outlook has attracted Wall Street investors as well as business from major server and storage sellers Dell Inc, Hewlett-Packard Co and EMC Corp.
"These guys are working with everyone because they don't know who is really going to emerge victorious a couple years down the road when the dust settles," said Gartner analyst Joseph Unsworth. "Right now there's a deluge of vendors piling into this area."
In a sign of tougher times, Santa Ana, California-based STEC's shares plummeted 42 percent in a single day last week when it warned that its lead in the market was under siege.
Much of the value of companies like OCZ, STEC and Fusion-io lies in technology they have invented that accelerates how quickly flash drives work and eliminates errors in reading and writing data -- critical factors for corporate customers.
While chipmakers like Micron Technology Inc and Samsung Electronics Co Ltd have built their own solid-state drives, they have made less progress on controllers and software needed to make them work well in data centers, analysts say.
MARKET DEBUTS
Fusion-io, which makes flash memory modules for servers and boasts Apple Inc's co-founder Steve Wozniak as its chief scientist, saw its shares soar 34 percent in its stock market debut in June. It counts Facebook and Apple as top customers and is due to post quarterly earnings on Thursday.
Start-up Violin Memory, which makes arrays of flash chips for data centers and is backed by Toshiba Corp, is preparing to hold its own initial public offering. It works with HP and IBM.
Disk-drive makers Seagate Technology Plc and Western Digital have also begun building solid-state drives to diversify their businesses as growth in their traditional market fades.
"If you have really good controller technology, then you're a likely target," said Richard Shannon, an analyst at Northland Capital Markets.
Growing demand for enterprise flash storage has already triggered one tie-up between a large memory chip maker and a smaller company with specialized technology.
"What will be interesting to see is if a NAND flash maker buys one of the really good controller guys," said Shannon, pointing to STEC and OCZ. "Then everyone else had better look out."
Other privately held players in enterprise flash storage with potentially enticing technology that could be acquired include Virident, Intel Corp backed Anobit Technologies and Texas Memory Systems, analysts say.
In May, Sandisk Corp, known for selling memory for cameras and other consumer devices, spent $327 million to buy enterprise flash storage provider Pliant Technology and gain its technology.
While flash chips are making fast inroads with corporations, most data is still stored on slower and much cheaper hard disk drives, which use pins to read and write data on spinning platters.
Pairing heavyweight chipmakers Micron, Samsung and Toshiba with companies like STEC and Fusion-io would make sense since a major portion of the cost of enterprise solid-state drives comes from the price of flash memory used in them, analysts say.
"Over the longer term, you're going to see vendors with their own (manufacturing) capacity win, just because their margin structure is going to be superior," said Avian Securities analyst Matt Bryson.
(Reporting by Noel Randewich, editing by Gerald E. McCormick)
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