Three years ago, Force 10 networks faced a bleak future. Telecoms, the major customers for its high-speed data switches, were collapsing. Then Google ordered a batch of switches for a major expansion of its data centers – and has been buying ever since. “It put the company on the path to the big time,” says Gary Morgenthaler, general partner at Morgenthaler Ventures, an investor in Force 10. The startup is reported to have hit $60 million in revenue in 2005 and is expected to file for an IPO soon.
Force 10 was at the front edge of a wave of hardware spending that is about to reach tsunami proportions, creating huge opportunities for established and fledgling gearmakers alike. The Big Five Web titans – Amazon.com, eBay, Google, Yahoo, and especially Microsoft – are locked in a frenzied battle to improve their ability to deliver content, whether for Flickr photo albums or eBay’s fast-growing listings. To do it they need tons of nuts-and-bolts hardware – storage, servers, routers, switches, load balancers – which they’re consuming at an incredible speed.
For example, Microsoft plans to switch all 230 million users of its Hotmail service over to Windows Live Mail accounts with 2 gigabytes of free storage each, matching the amount of free storage Google offers its Gmail customers. That adds up to a whopping 460 petabytes that Microsoft will have to provide, not to mention all the routers and switches needed to shunt the data around. Industry sources say Microsoft is also seeking 10,000 servers for its online gaming service, Xbox Live.
Such virtual land grabs mean a major payday for Silicon Valley. Most hardware companies don’t want to talk about it, worried that rivals might undercut their bids. But the beneficiaries of the $1.4 billion that Google is projected to splash out on infrastructure in 2006 include disc drive manufacturers Seagate and Hitachi. Network Appliance and Cisco are among Yahoo’s major suppliers, while Sun Microsystems boasts about being eBay’s server vendor. Juniper has won a Microsoft contract for its routers estimated by some insiders at $120 million.
More details by following the link, but folks with long memories will remember that Sun was riding high powering the dotcom boom in the late 90′s and then suffered mightily during the bust. I suspect the difference here is that these are major companies buying the goods and while things will slow down after the intial buildout, augmenting and replacing will be a tidy business for years to come. And a considerable expense for Microsoft and the other big players.