So close … so close … and then …

In this past weeks HPCwire podcast, Chris Willard and Michael Feldman discuss many things.

The business side of HPC, the future of companies, etc. I agreed with everything they said (having said it here in these pages in the past).

That is, until the last minute. Thats where what they said doesn’t quite mesh with what we observe and are experiencing.

Specifically, they suggesting that in these tough times, end users are being more conservative, sticking with the large vendors, and eschewing the smaller vendors. They appear to base this analysis on the picking up of Onstor by LSI and Ibrix by HP.

With all due respect to Chris and Michael, I disagree with their view. We see something very different in the HPC storage market. We see users needing the same if not better performance, with much smaller budgets than in the past. Moreover, when we speak with these users, we hear how they wanted to buy X, but they just couldn’t afford it.

We see the same thing in the HPC market, where users have smaller budgets but the same or larger problems than in the past. This is part of what is driving the accelerator market. ISVs looking at dwindling budgets for their wares are looking to how
to reduce the hardware cost for computing so that a larger fraction of the smaller pool of money can be spent on their software.

Don’t underestimate the macroeconomic viewpoints in terms of how it changes companies purchase plans. It most definitely does not make them more conservative, apart from a limited range of customers who still have money. It makes them far more inclined to search for value, and reduce purchase costs. It drives them to be creative about how to solve their problems.

We are hearing this across the board from many companies and organizations that might not have given a small company the time of day during good economic times.

Even more than this, speaking with senior management at these organizations, these changes are being viewed as permanent, apart from exceptional cases. That is, IMO, why HP et al are purchasing these other companies.

Like other HPC (storage) organizations, we have had a very good previous quarter, and this one looks to be even better. We haven’t been approached for outright purchase recently, but have had a number of discussions with investor types in the very recent past.

So my belabored point is that we think this market (where we are) will continue to grow. We have what we believe to be best of breed gear, at reasonable prices. We have price-optimized gear with reasonable performance. Some number of our competitors are falling by the wayside, and we are working on aggressively growing our installed base.

We’ve had discussions with some of the larger folks out there, and they freely admit they can’t do what we do. Which is fine, we can partner on these things. Or they can buy us.

That is the view that I think drives the M&A in the market. Smaller vendors have niches and capabilities the larger vendors don’t have. So they partner for a while, and then get bought. There is some more predatory purchasing of assets, such as CFS by Sun, and others. But at the end of the day, the deal has to make sense to be consummated, or the company will lose big (Sun and MySQL, Ebay and Skype, …) and continue to hemorrhage.

The next M&A bits I could see are people snapping up Panasas, ScaleMP, and others. I’d argue for Dell getting Panasas, Cisco getting ScaleMP (though there is that pesky 10GbE issue ScaleMP would have to deal with). I guess we could see ScaleMP going to Mellanox as well. Less work, and instant value add for Mellanox’s IB line.

But all of this is little more than a guess.

I believe Michael and Chris are not well aligned with what we are observing, which is, at its most succinct, people and organizations need to do more, and spend less. We are seeing this throughout the economy. People being asked to be more efficient. Work fewer hours to keep costs down. Get the same work if not more done, in that period of time. Being conservative … not taking “risks” isn’t even on the table for most folks. Being more productive? Spending less capital? Yeah, thats on the table.

How do you do this? You focus upon the higher value vendors and products. Those that give you the ability to do more with less cost. Vendors whose revenues crater are those that can’t explain in a reasonable manner during this time, why they are better than the alternatives.

Business is brutal. It is a contact sport. It ain’t easy.

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