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New Orleans, LA — Sonia R. Lelii reported for eWEEK: Compaq Computer Corp. has no doubts about what will be the lynchpin technology in storage in coming months: software. “It is going to the be the key differentiator, and it will probably be the only differentiator,” said Mark Lewis, who took the reins this week from Howard Elias as vice president and general manager of Compaq’s Enterprise Storage Group. “We are going to be focusing on two areas. The first is service providers and the other is software.”

While the Houston-based company is in the midst of a price war to sell off a backlog of PCs as a result of sluggish holiday sales, executives in Compaq’s Enterprise Storage Group are feeling upbeat about their position. They are the No. 2 supplier worldwide of disk storage systems as well as the No. 2 supplier in overall revenue, according to preliminary 2000 figures from IDC in Framingham, Mass.

“We are doing phenomenally well,” Lewis said in an interview at Compaq’s ENSA@Work 2001 Storage Conference here. “You won’t see any radical (change in direction) from me because I, and a few others, created this strategy. We’ve built a strong strategy.”

Among the key points of Compaq’s storage strategy are an emphasis on open SANs (storage area networks) and developing management software for storage so IT managers can efficiently handle the mountains of data stockpiled as a result of the Internet. Compaq (NYSE: CPQ) is in the process of developing VersaStor, intelligent software that essentially creates logical pools of storage capacity from the physical disk drives.

Last year, Compaq entered a formal partnership with IBM (NYSE: IBM), in which the two companies will be sharing and selling each other’s storage technology. Compaq sees this as a way to double its sales force and as an opportunity to build interoperability between the companies’ storage systems. On Monday, Compaq will announce its StorageWorks SAN topology roadmap, which includes increasing the number of switches–from four to 20–and ports–from 52 to 300–that its technology supports so that IT managers can cross-link more SAN islands together using Brocade Communications Inc.’s switches.

Compaq is reselling IBM’s Enterprise Storage Server (also known as Shark) and has changed its name to the StorageWorks Centralized Shared Storage (or CSS) 2105. The device will be available for volume shipments starting next week, and it already has demonstrated interoperability with Compaq’s storage device, the Modular Array 8000, Compaq officials said.

Free hardware eventually?

In other storage news, the company has allocated $100 million in capital investment this year to storage-related companies, compared with $50 million last year. The money will be used in deals similar to the $20 million investment in HighGround Systems Inc., which recently was bought by Sun Microsystems Inc.

Lewis said the $100 million “is purely external. It is equity investment in outside companies. In some cases, we like the technology but we don’t see it relating to Compaq’s strategy. In other cases, we partner with the company like we did with HighGround.”

The other area in which Compaq is building its storage foundation is storage-management software. Company officials are looking to double their number of software developers from 200 to 400 this year. Lewis said storage hardware is getting cheaper as the price per megabyte drops and disk drives become faster.

“Eventually, the hardware is going to be free,” Lewis said. “The cost per megabyte is going to be so small it won’t be a factor because you will get capacity and it will be virtually free. In terms of value, it is going to move into the software. The percentage of money spent in storage software will be a lot higher.”

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