Storewidth is analogous to Bandwidth. Storage capacity is not the problem, it is the bandwidth to the storage, between the storage, and onto the storage that is the problem.

I was pleased and surprised by the depth of the technical debate.

It is clear that opportunities exist for companies to optimize hardware components for new distributed computing architectures. My prediction: Google (GOOG) will fund startup Memory and Disk companies to supply what they need.

(Italics are my comments. Plain Text is my transcription) If folks have changes/corrections by all means add them into the comments.

Panelists:

• Luiz Barroso, Distinguished Engineer, Google 
• Josh Coates, President, Founder, Mozy.com, Berkeley Data Systems, Inc.
• Apostolos Gerasoulis, Co-Inventor of Ask Search Technology, Ask.com
• Lane Patterson, Chief Technologist, Equinix (EQIX)
• Dayne Sampson, Vice President, Information Technology, Ask.com
• Mark Stahlman, (Financial guy involved with this area, I missed his employer/title)

Stahlman: Google is a digital services company. Put $2000 price target on Google earlier this year. Feels that centralizing computing on the network is the future.

Luiz Barroso: Responds to question if his company is worth $2000 a share. “I am very passionate and knowledgeable about some things but the stock market is not one of them.” Good for him… not an appropriate question.

Patterson: Things started to shift to this massively distributed model around 2001 when Google illustrated what could be done with racks and rack of cheap PCs. Google builds their own PCs from scratch and optimizes the hardware design for reliability cost and low power.

Gilder: This approach has worked for search applications, will it work going forward? Good Question… how do you know new apps won’t break this model?

…

Gerasoulis: Power is now the barrier cost to data centers, not computing bandwidth.

Patterson: Future is 380V DC power straight into the PC. Get rid of AC power requirements.

Stahlman: Google will eventually open up their platform to other businesses. Salesforce.com allows third parties to write plugins to their application. Google will do the same thing for consumer applications. (Isn’t Yahoo already doing this? I think this is already happening? What would you call a Google Maps mashup?)

Innovation in drives is not in the right direction for use in data centers. Density keeps going up but speed does not, so in high speed applications, full utilization cannot be achieved. Seek times are a big problem, so big datacenters focus by distributing utilization. Failure rates and mechanisms are not well understood, and it is possible we could be using less backups (Google backs up in triplicate in some situations) if the mechanism of failure is better understood. NAND flash could start bridging the gap. (Intel announced some new Flash technology that would hit this market head on here.)

Audience Question: RAM Disks based on flash would only accelerate by a factor of 2 because the OS is so poorly optimized for accessing fast storage. This problem needs to be solved.

Coates: Problem exists in server interconnect. Attempts have been made (Infiniband) but the issue is always that not enough volume exists to drive the cost down low enough to be better than a big distributed architecture using off the shelf components. There just are not that many customers for this type of equipment.

Gilder: Is it possible that these massive data centers being built next to hydroelectric dams are going to be obsolete in the near future? Good Question…. will this capex yield out.

Unknown Panelist: One solution that would be disruptive is to put portion of Google search index on every device and distribute 80% of the requests. Send out updates via FedEx (Or peer to peer internetworking)

Question for Stahlman: Is Sun (SUNW) going to be acquired by Google? Answer: Anything is possible. Dell (DELL) can no longer continue as the company they are. Without R&D they are hopeless. They will merge with an EMC (EMC) or Sun. (I totally disagree with this. Dell is the ultimate platform company.)

This post is one of a series as I blog the Gilder Telecosm 2006 conference. All posts can be found by searching for ‘Telecosm 2006′.

Your broker neglected to mention that the biblical Four Horsemen of the Apocalypse were steered by four riders – Conqueror, War, Famine and Death. I’ll leave it to my readers to pair them appropriately.

Today, I like to refer to Google (GOOG), Apple (AAPL), HP (HPQ), and AMD (AMD) as the new Four Horsemen of Web 2.0. Reading and listening to the media chatter about these companies induces an uncomfortable dot-com deja vu.

Bill Gates, CEO of Microsoft (MSFT) and Paul Ottellini, CEO of Intel Corp. (INTC) co-wrote an editorial in today’s WSJ. Clearly they are appealing to those who have fled their equities for the promises of Web 2.0.

Recently, we’ve read on the pages of The Wall Street Journal that we’ve reached the end of the personal computer era and that the open, broad industry approach that has enabled today’s rich computing experiences doesn’t apply to the world of digital devices.

The reality is a little different. The truth is that the model which has fueled the incredible popularity and affordability of the PC will continue to drive innovation and choice in the burgeoning area of personal devices such as cell phones, digital players and mobile PCs. As such, the PC is becoming more important and popular as a key enabler for these new digital scenarios in every corner of the world, from Indianapolis to Istanbul. If anything, it is, to paraphrase Churchill, perhaps the end of the beginning…

Gates and Otellini have a very valid point. While MP3 players, digital cameras, phones, and web based applications have stolen the show in the marketplace, all of them still rely on the PC as a digital hub. Nothing has emerged that will replace it. The only threat is the ‘thin-client’ web based application model, an idea that gets trotted out every few years and then is subsequently put back in the barn.

In addition to Intel and Microsoft, two other big-cap companies that have suffered as a result of this shift in perception are Dell Inc. (DELL) and Yahoo! Inc. (YHOO).

Competitively, all four of these companies are still forces to be reckoned with.

• Yahoo earned more money than Google in the trailing twelve months from a more diversified business model.
• Dell’s supply chain for electronics rivals Wal Mart’s in terms of efficiency and they will eventually succeed in their efforts to commoditize the consumer electronics space. The current market’s perception that PC’s are anything but commodities is a brief vacation from reality, and Dell is the best commodity producer out there. I believe the cost structure of Dell’s supply chain and web retailing model will beat HP’s.
• Intel will rip the throat out of AMD with their new low power designs for servers. They have a much bigger capital base to borrow from to build next generation fabs if (when?) money becomes more expensive. Otellini realizes the company has become too free-spending. AMD isn’t going away but the earnings multiple gap between the two is absurd.
• Microsoft has been cornered before and recovered. The Vista upgrade cycle will re-energize the cash machine. Over half of all Smartphones now run Windows Mobile 5.0 (Yes, more than Blackberry and Palm combined). Xbox 360 is looking to take share from Sony and has the best online service hands down. Meanwhile, Apple trundles along with a 5% market share in PC’s and 1/4th the valuation of Microsoft.

This is what the market cap vs. P/E multiple relationship looks like.

While the new ‘Four Horsemen’ may be the preferred growth engines of Web 2.0, I think these four out-of-favor companies represent a better investment vehicle for the next five years. Those with more exotic tastes can hedge by selling AMD, AAPL, HPQ, GOOG short while going long INTC, MSFT, DELL, and YHOO. This is a more market neutral strategy.

Inspiration and some data: USA TODAY

Disclaimer

We think PMC-Sierra did indeed overpay. Here’s a generous financial picture of the storage division.

Some have drawn the conclusion that this is a positive deal because it is accretive to earnings, while ignoring the erosion of stockholder equity. Others draw conclusions by comparing this deal to the Qlogic deal or Adaptec deal. We don’t think that’s important. What is important is what will need to happen for shareholders to realize a decent ROI on a 425M cash investment.

These are the real questions:

1. Will the unit volume grow?
2. Are the margins defensible?
3. Does the product line have a compelling roadmap?

1. HP and IBM are moving away from Fibre Channel. Their roadmaps are pointed at SAS and SATA arrays. Outside of EMC there has been a wholesale shift from Fibre Channel to SAS as a technology. PMC-Sierra has made a big investment in this area but emerged with only one big win- you guessed it – EMC. It is safe to assume that EMC is expected to provide the bulk of the top line growth for the Tachyon products.

2. Today, nearly 1/2 of the Agilent Fibre Channel revenue comes from EMC. EMC as a supplier isn’t going to be thrilled by the prospect of paying 70% margins long term on $50MM of annual sourcing business. Even if the margins are at this level we don’t expect them to stay there long. Since most of the top line growth going forward is likely to be EMC, expect the margins on this business to drop into a range of 30-50% more common with mature boutique product technology cycles

3. We have some serious concerns here. It is known that Sierra Logic was founded by the team that built the original HP/Agilent Tachyon products. Agilent has been slow to migrate their products away from Fibre Channel and ceded the new SAS market to companies like VTSS and PMCS. PMCS already has a running start in SAS/SATA, so why do they need Agilent? Also, it’s impossible that this was a cash flow harvesting move by PMC-Sierra since they would be terminating the product roadmap for their #1 storage customer.

PMC-Sierra is a well managed company but we don’t see the logic in this acquisition. “There is what we see and what we do not see” (Bastait) and it is what we do not see that may be most interesting. Some enlightenment from management on what we do not see would be most welcome.