January 09, 2006

Storage - not just for your hard goods

According to Jeff Matthews, a veteran of Wall Street and the hedge fund industry, revisiting the all but dead storage industry may be worth your while. I need to go back to my notes beyond Sun Microsystems, IBM, EMC, hard drive makers like Seagate and hot flash companies like SanDisk. His basic thinking is that with the rapid acceptance of photos and now video, combined with the basic decline in the cost of storage, we will get in the habit of keeping everything.


Here is a brief part of his recent blog:

Almost unnoticed in the Google-phoria, however, has been the recent revival of a company that was left for dead in the wake of the Internet bust. To whit: Sun Microsystems.

Sun is the last of the “Four Horsemen of the Internet” (Cisco, Oracle, EMC and Sun) to recover its bearings from the post-Bubble crash, and probably the least-admired of the bunch among Wall Street’s Finest. It was also, last I watched, getting one of those eye-rolling, sudden-onset-of-migraine faces and an emphatic “Sell-Sell-Sell” from Jim Cramer on Mad Money.

But a funny thing happened on the way to Chapter 11. Sun Micro’s stock has been showing up on the new high list. And, get this: it’s actually outperformed Google this year.

That’s right: both stocks opened the year around $420 (multiplying SUNW by 100). And on Friday, GOOG closed at $466 while SUNW closed at $471.

No, I’m not a big fan of Sun, nor do I own the stock. Yes, I know that four days’ worth of so-called “out-performance” means nothing at all.

But after considering Sun’s appearance on the new high list and pondering the apparent recovery in one of the most poorly managed of the major IT equipment makers—measured by almost any metric you want to throw out there—I am beginning to wonder if it has to do with a single word, like plastics.

In this case, however, the word is: “Storage.”

Yes, we all know storage needs are increasing a lot. But to understand what that actually means, I have looked at my own storage needs, as measured by the capacity utilization at two email accounts—a ten-year old Microsoft Hotmail account, and an 18-month old Google Mail account—and I can confidently say that storage needs are increasing A LOT.

Thanks to Google’s “never-delete-anything” email structure and easy search techniques, I've archived over 400 emails in the last few weeks, half of which I would have deleted out of my MSN account.

With Google Mail’s search capability, you get comfortable actually keeping pretty whatever email comes in—except for the Thank You Please Congratulations I Have Ten Million Necessary Nigerian Bank Account emails that get through the spam-filter—without fear you won’t be able to find the email when you actually need it.

Once your mindset becomes comfortable with this shift away from the delete-everything-not-necessary mode, you start to run up some pretty serious megabits at the Google storage farm.

To put a number on it, in my MSN hotmail account, which, as I said, has been around for more than ten years, I am currently using 120 megabits out of the 2,000 megabits available for storage.

On Google Mail, which I have had since July 2004 but only began using for the last two months (following the last and final disruption by Microsoft Hotmail, which started automatically moving new emails into the Trash Can without asking), I am currently using 134 megabits out of 2,682 megabits available—and that capacity is increasing daily.

Hmmm...120 megabits in 10 years versus 134 megabits in 2 months. That's some acceleration in storage demand.

Combine changing email habits with video and photography sites such as Flikr and YouTube that are collecting massive amounts of digital content—and you're talking about mega-megabits.

Which makes me think the word from the cuckolded Mr. McGuire to poor, confused Benjamin, would today be “Storage.”

How an investor can make money from the trend is a question for the house. Whether Sun Microsystems becomes more than a temporary resident of the 52-Week High list and makes Cramer’s “Buy-Buy-Buy” or Hallelujah Chorus buttons is something else.


Two cents - good stuff and worth thinking and researching further. Thanks Jeff.

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