Report: HBA Market Stalls: Page 2 of 3

Indeed, whereas HBAs grew -- albeit anemically -- the disk storage market declined 15 percent in 2002, according to IDC (see IDC: HP Still Top Dog).

The market research firm hasn't publicly forecast what it expects this year's numbers to look like, but, pointing to Emulex and QLogic's recent results, Opfer says it's safe to assume that the market will grow more than 1 percent. "It's hard to argue that the market didn't grow in the first quarter," he says. "This year they already had so much of the share that they can't grow without growing the rest of the market."

If the market doesn't pick up, however, both Emulex and QLogic may find that the HBA revenue express train they've been on could slow to a crawl. The two companies currently account for nearly 80 percent of the market and will be hard-pressed to continue spurting ahead as the overall market virtually stands still. "When the market share gains are exhausted (all else being equal), growth must by definition slow down for ELX and QLGC, unless one starts to take share from the other," Ader writes.

Table 1: HBA Revenue by Vendor (in Millions)

"If it does become a zero-sum game, it boils down to gaining market share from the other," agrees Frank Berry, QLogic's VP of marketing. But he adds that there are still a lot of legacy HBA contracts waiting to be replaced that could benefit either Emulex or QLogic, or both. These two vendors have taken share primarily from Agilent Technologies Inc. (NYSE: A) and JNI Corp. (Nasdaq: JNIC).