Omdia’s most recent analysis indicates that data center storage systems are showing signs of a rebound, with a notable revenue increase of over 10% in the final quarter of 2023.

The report highlights a 12.5% year-over-year (YoY) decline in external storage system revenues, bringing the total to $14.4 billion. However, the fourth quarter saw a 11.9% quarter-over-quarter (QoQ) growth, signaling a gradual recovery. This uptick was driven by stabilizing revenue declines from original design manufacturers (ODMs) and a resurgence in branded storage system sales, as vendors navigated the high revenue figures from the previous year.

Traditional Storage Sectors Hold Steady While Cloud Storage Faces Challenges

The start of 2023 brought numerous difficulties for the data center storage market, including global inflation, banking sector instability in the U.S., fluctuating currencies, persistent supply chain issues, and geopolitical uncertainties. Despite these headwinds, the market began to recover by the year’s end. Original design manufacturers (ODMs) that primarily cater to hyperscale data centers suffered a significant drop in shipments, while traditional original brand manufacturers (OBMs) managed to fare better, despite a moderate YoY decline. Over the entire year, ODM revenues fell by 31%, while OBMs saw a smaller decline of 6%, demonstrating greater resilience in traditional storage systems.

Decline in Hyperscale Storage, Modest Growth in On-Premises Storage

White-box storage used by hyperscale data centers saw a steep decline in shipments early in 2023, while on-premises enterprise storage experienced less of an impact. Toward the latter half of the year, OBMs began to show improvement in their shipment volumes, and ODMs started recovering from earlier losses. By the end of the fourth quarter, hyperscale data center storage shipments grew sequentially for the first time since 2022.

In 2023, while economic challenges led to delayed infrastructure investments in enterprise storage, the impact on traditional storage systems was less severe compared to cloud-based systems. As the year progressed, shipments to on-premises storage facilities picked up, signaling a return of confidence in this market segment.

Storage-as-a-Service Gains Traction, Affecting Vendor Revenues

The year 2023 also saw the rise of Storage-as-a-Service (StaaS) models, as traditional storage providers introduced subscription-based solutions to compete with cloud-based pay-per-use services. OBM vendors reported increased interest in these agreements, with a steady rise in on-premises StaaS deals. While this model promises long-term stability for vendors and clients, its rapid adoption also contributed to a temporary dip in vendor revenues. Unlike traditional sales models, where revenues are booked upfront, subscription revenues are recorded gradually, which affected the financial reports for branded storage vendors in 2023.

External Storage Vendor Performance in Q4 2023

Data from Omdia shows that OBM revenues fell by 4% YoY, while ODM revenues plummeted by 29% in Q4 2023. Specific vendor performances include:

• Dell EMC: After a strong 2022, it experienced an 18% drop in YoY revenues in Q4 2023.
• Huawei: Continued to gain market share, increasing its lead by 1.5 points.
• NetApp: Despite showing growth in Q4, it still ended the year down overall.
• Lenovo: Strong ODM+ shipments helped offset declines in traditional product lines.
• IEIT Systems (Inspur): Made a comeback in Q4, buoyed by demand from Chinese service providers.

Looking Forward: 2024 Brings Optimism for Storage Markets

Omdia predicts an improved outlook for 2024, with storage systems remaining critical to data management. Reinvestment in storage is expected to accelerate, driven by trends such as digital transformation, the expansion of the Internet of Things (IoT), increasing use of data analytics, and growing demand for artificial intelligence (AI).

While the rapid growth of cloud computing has slowed, Omdia forecasts a solid 10% compound annual growth rate (CAGR) for cloud services over the next five years. The transition to hybrid cloud environments, where workloads are dynamically moved between on-premises and cloud data centers, is expected to continue. This shift in workload distribution is driving balanced demand for both cloud and on-premises storage solutions.

Despite a challenging year, the storage innovation landscape remains robust, with Omdia forecasting a 12% CAGR for storage revenues through 2028. An 11% overall market growth is anticipated for 2024, with cloud storage expected to see a resurgence by mid-year. The growing focus on new storage technologies, such as unstructured data management, enhanced security features, and scalable, high-performance file systems, is set to reinvigorate the market, counteracting the downturn seen in 2023. This continuous innovation underscores the resilience of the storage industry and its ability to adapt to evolving market demands and challenges, building confidence in sustained future growth.