Pure Gold: Flash Vendor Predicts 30%-Plus CAGR, $35-Billion TAM
SAN FRANCISCO: Pure Storage has made it to the big leagues, having outfought, out-thought and outlasted the hordes of competitors in the enterprise flash storage market, which is experiencing explosive growth in the rapidly emerging digital transformation/big data and analytics/Internet of Things world. No longer relegated to the ‘Others’ category, it is a top-five player that looks too big to buy (Dell EMC, like James Bond, proves you should Never Say Never Again, but an acquisition — or at least a suitable acquisitor — appears unlikely) and too small to thrive without some help, typically a significant barrier to entry like proprietary (and popular) intellectual property, large installed base or deep pockets.
With both the $1-billion revenue plateau and its first quarterly profit within reach in calendar 2017, the Puritan elders — AKA its senior executives — are predicting even bigger things to come, like at least three more years of 30%-plus revenue growth, surpassing the $2-billion annual revenue mark by 2020. That prediction was just one of the items announced to more than 3,000 customers, partners and staff (with another 2,000 online, for a total increase of 300% over last year’s inaugural event), at this week’s Pure//Accelerate 2017.
Unlike the overall enterprise storage market, which continues to see capacity shipment growth at the expense of revenue and margin growth, the flash market, especially all flash arrays (AFAs), is growing explosively — 48% in the first quarter. Sales were a little over $1.3 billion, with Pure Storage holding down fourth place with 12% market share, behind Dell EMC (29%), NetApp (21%), HPE (17%), and comfortably ahead of IBM (7%).
“All-flash array is the only segment growing in the external storage market space,” said Jimmy Yu, Dell’Oro Group vice president, in a statement. “While the total market for external storage has contracted for the past two years, and will likely decline again this year, all flash storage system sales are reaching all new highs. We predict all-flash array revenue to grow approximately 40 percent in 2017 to reach nearly $7 billion while disk and hybrid storage system revenues decline about 14 percent.”
AFA’s future is looking even brighter, according to both flash guru Jim Handy, GM of semiconductor research group, Objective Analysis, and Gartner. Handy expects a manufacturing breakthrough in high-capacity 3D NAND chips next year that will further lower AFA prices. Gartner is predicting that half of all data centers will only use AFA for primary storage by 2020, with the market growing to $9.67 billion.
Pure believes the total addressable market for its faster solid-state storage arrays is $35 billion. Dave Vellante, chief analyst of Wikibon, agrees the market may be big enough to support Pure and a number of other upstarts. “But it will be a knife fight and there will be more consolidation in the array business,” he said. “To emerge a leader Pure must get cash-flow positive and keep expanding its total addressable market by delivering on its aggressive roadmap. If it can stay ahead of what I call the ‘storage cartel,’ it will emerge a winner.”
Flash’s growing popularity is in sharp contrast to the total enterprise storage market, which saw a 6.7% drop in factory revenue in 4Q16, to $11.1 billion, while capacity shipments grew 18.3% year over year. IDC reported that sales of server-based storage declined 7.8% during the quarter and accounted for $3.4 billion in revenue, while external storage systems remained the largest market segment, but the $6.4 billion in sales represented a year-over-year decline of 7.8%.
“2016 represented a year of considerable change for the enterprise storage systems market,” said Liz Conner, research manager, Storage Systems. “While the broader enterprise storage systems market has been impacted by headwinds, companies continue to increase their investments in several key areas, such as software-defined storage, cloud-based storage, all flash storage systems, and converged systems. As a result, traditional enterprise storage vendors have aligned their portfolios to meet the shifting demands.”
IDC’s Q1 enterprise storage numbers weren’t much better. Factory revenue was down 0.5% YoY to $9.2 billion, while capacity shipments were up 41.4%. It’s numbers were even higher on flash sales, with AFA reaching close to $1.4 billion, while the Hybrid Flash Array (HFA) segment came in at $2.0 billion, or 22.0% of the total market.
Size — or at least the lack of it in comparison to its more established competitors — is one of the challenges facing Pure. Dell Technologies held on to top spot with 32.9% of worldwide revenues, while HPE, IBM, and NetApp finished in a statistical tie for second place with 10.2%, 10.1% and 10.0% respectively.
Pure Storage is flirting with the billion-dollar-annual-revenue plateau, but while sales have been seeing growth comparable to the overall flash market, up 31% YoY to $182.6 million in its latest quarter, profitability is still an aspiration, not an expectation. It posted a net loss of $62.4 million, considerably better than expected. Company executives claim it is on pace for $1 billion in revenue for 2017, plus its first profitable quarter by the end of the year.
While Pure CEO Scott ‘Dietz’ Dietzen sees opportunities with HPE’s acquisition of Nimble and Dell’s acquisition of EMC — which of the 7 platforms offers the best solution, and which might be discontinued — he emphasized the Cisco situation as one area they’ve been able to capitalize. ‘Cisco and EMC had a partnership prior to the Dell acquisition, but Cisco doesn’t want non-Cisco gear going into EMC storage refreshes. As an EMC competitor, I think that [shakeout] has brought us a bunch of new business.’
The Cisco partnership is strong, and growing, agreed Pure President David Hatfield. The two companies have 1,400 joint customers, and are growing at 70% YoY. In total, Pure has more than 3,300 customers, and the company is looking to continue its torrid growth rate. “We think we can maintain above 30% sustained growth through 2020,” said Dietz.
In the second part of our look at Pure Storage we’ll dive a little deeper into the company’s current and planned portfolio, some new market insights, and its prospects for the future.
DISCLAIMER: Pure Storage looked after airfare and hotel, and while I do not own any shares in the company, I do of a number of others mentioned in this article.