Enterprise storage revenue increased 2.8 percent year-over-year in the third quarter of 2015 while networked storage declined 3.1 percent, according to IDC’s disk tracker numbers. Perhaps a better way to put it is Hewlett Packard Enterprise (HPE) and smaller vendors increased, while the rest of the large vendors’ sales tanked.
HPE’s overall disk sales increased 16% to $1.49 billion and its market share grew from 14.4% a year ago to 16.3%. HPE remained second but closed in on leader EMC, which dropped from 20.5% share to 18.4%. EMC’s disk revenue dropped eight percent over last year to $1.68 billion.
IDC said worldwide disk revenue totaled $9.1 billion for the quarter, and capacity shipments grew 31.5% to 33.1 exabytes. IDC credited a rise in server-based storage and storage sold to hyperscale data centers for the overall gain.
HPE was followed by No. 3 Dell with 9.9 percent market share and $899.4 million, No. 4 NetApp with 7.1 percent share and $651 million, and IBM with 6.4 percent share and $584.6 million. All three declined in revenue from last year. IBM’s 32.5% drop reflects it selling its server business to Lenovo.
Revenue from original design manufacturers (ODM) that sell directly to hyperscale data centers increased 23.4% to $1.25 billion and now makes up 13.7% of the market. The smaller vendors who make up the “others” category increased 15.2% to $2.58 billion and 28.2% share.
EMC still has a tighter grip on the external storage market, which consists of storage area networks and network attached storage. All of EMC’s $1.67 billion revenue was in this category, but it fell eight percent from last year and its share dipped from 30.7% to 29.1%. NetApp remained No. 2 despite a 12.8% drop to $651 million and 11.3% share. HPE increased 5.3% to $598.5 million and 10.4% to move past IBM, which stood fourth at $534 million and 9.3 percent market share after a 9.6 percent decline. Hitachi Data Systems rounded out the top five after falling 11.3% to $451.2 million and 7.8 percent share. All other vendors combined increased 8.4 percent to $1.84 billion and 32% share.
The overall networked storage market fell to $5.76 billion in the third quarter. IDC said all-flash array revenue increased 60.8% to $626 million in the quarter and hybrid flash array storage jumped 26.5% to $2.4 billion.
“Spending on traditional external arrays declined during the quarter as infrastructure refresh, coupled with the demand for software-defined storage and cloud-based storage, drove investments more heavily in server-based storage and hyperscale infrastructure,” IDC storage research manager Liz Conner said in the IDC press release.
Pure Storage’s first earnings call since its October IPO was a rosy one on the revenue side.
The all-flash array vendor’s revenue hit $131.4 million in its fiscal 2016 third quarter – a 167% increase over the $49.2 million for the same three-month period ending Oct. 31 a year ago. Pure Storage claimed to have added 250 new customers, including Domino’s Pizza and The Boston Globe, in the quarter to boost the total number north of 1,350.
Pure’s strong revenue growth stood out especially in comparison to the dismal earnings report Tuesday from another all-flash array (AFA) specialist. Violin Memory reported revenue of just $12.5 million – down 18% from the prior quarter and 42% over the same period a year ago.
Pure will rank third in revenue among AFA vendors, behind EMC and IBM, in an International Data Corp. (IDC) forecast due out next week, according to Eric Burgener, a research director in IDC’s storage practice.
Although Pure stands tall over other AFA startups, the company faces increasingly stiff competition from long-established storage vendors. EMC recently said its XtremIO AFA line saw triple-digit revenue growth year-over-year for the last two quarters and remains on track to do $1 billion in business in calendar 2015. IBM reported flash revenue increases of more than 50% in each of the last three quarters.
Among the other large vendors doing well on the flash front is Hewlett Packard Enterprise (HPE). CEO Meg Whitman said last week that revenue for HPE’s 3PAR AFAs more than doubled during the last quarter, and the product is on pace for $500 million in sales in the next year.
“Guys like EMC, IBM and HPE all have secondary storage platforms, and they can replicate between their primary all-flash arrays and any of their other platforms if they want to use them for backup, for disaster recovery, to move data into an archive,” Burgener said. “That’s going to be a challenge for companies like Pure that are currently selling only a primary storage array because obviously the other guys are pitching the full portfolio.”
Another challenge for Pure will be keeping expenses down to keep its losses in check. The company made progress last quarter, reducing its non-GAAP operating loss to $28.1 million compared to $51.6 million in the previous quarter.
Stifel Financial Corp. analyst Aaron Rakers wrote in a research note that he was more impressed by Pure’s operating leverage than by its revenue exceeding expectations by 16.2%. Stifel noted that Pure reported a decrease in non-GAAP operating expenses to $109.2 million – 5.4% lower than the financial firms’s expectations – although Pure did push out some marketing and engineering spend to this quarter.
In a blog post, Pure CEO Scott Dietzen wrote that the company added $1.70 in revenue for each additional $1 of operational expense. Dietzen claimed Pure would continue to improve its operating efficiency as it invests aggressively in sales, marketing, support and its channel to maximize growth.
“If you look at Q3 this year vs. Q3 last year, we’ve cut our operating losses more than in half,” said Pure CFO Tim Riitters, citing the shrinking operating losses as a reflection of the company’s “discipline and focus.”
Riitters said Pure expects to generate positive cash flow in 2018.
“Right now we’re still only about a ,1200-person organization worldwide. EMC is a much, much larger organization,” Riitters said. “One of the reasons we’re growing and investing so much is really to increase the number of what we call at-bats. We’re constrained by the ability just to get in front of customers and show them how profoundly different the Pure Storage technology is. When we do that, we win our fair share.”
All-flash pioneer Violin Memory can’t sell enough all-flash arrays to make money. So its next move could be to sell itself in its entirety.
After another disappointing quarter, Violin CEO Kevin DeNuccio said the company has hired an investment banker to explore “strategic alternatives.” That usually means the company is for sale. But are there any takers with a glut of flash arrays on the market?
“There is no set timetable for completing the process, nor are there any assurances given that the exploration of strategic alternatives will result in any transaction being consummated,” DeNuccio said on the earnings call last night.
A financial analyst on the call asked DeNuccio what type of company might be interested in Violin.
“We think this is an attractive asset, both from a partnership or acquisition potential … “ he said. “The industry is obviously restructuring pretty dramatically with several companies buying storage companies and this company buying flash fabs. So we think there is a broad range of people interested in an asset like this.”
Violin hasn’t been able to find enough people interested in buying its flash arrays. Its $12.5 million in revenue was down 18% from the previous quarter and 42% from last year, and below Violin’s forecast of $16 million to $20 million. Violin lost $22.7 million in the quarter compared to $24.4 million the previous quarter and $23.5 million in the same quarter last year.
Perhaps the most disappointing aspect of last quarter was product revenue fell 63% to $6.3 million in the second quarter of availability of Violin’s Flash Storage Platform (FSP). Violin bet its business on its FSP, which added storage management and data protection features that were missing in its earlier performance-focused arrays. The FSP is still in early days and Violin added two new models this week, but a paltry $6.3 million in sales in a growing market doesn’t give much hope. Pure Storage, another all-flash pioneer, reported $131.4 million in total revenue and $113.6 million in product revenue in the same quarter.
DeNuccio admitted the quarter results were “extremely frustrating,” He said Violin failed to close one multi-million dollar deal involving a customer of its older 6000 technology that pushed back a FSP 7000 Series rollout.
“Our FSP and Concerto software, which consisted more than 50 million lines of code, has taken significant time and rigorous life testing to address the nuances of data risk, customer environment and to get things fully stabilized and operating properly,” he said.
He said Violin did gain a large repeat order of an FSP array from a large U.S. cable company and expects to add more than $1 million in revenue from that company each quarter. “This win … affirms our strategic premise,” Nuncio said.
Now if that cable company wants to get into the flash storage business, maybe Violin can find a buyer.
HP CEO Meg Whitman made that clear Tuesday during HP’s last earnings call before the split. Whitman, who will lead HPE, gushed over the momentum of 3PAR ahead of the company break-up.
Whitman said 3PAR StoreServ picked up share last quarter in the overall storage and flash-only markets. She said 3PAR all-flash arrays are on pace to sell $500 million over the next year and revenue more than doubled last quarter. That puts it ahead of the growth of newly public all-flash specialist Pure Storage, although it is still playing catch up to EMC’s XtremIO market leading all-flash array. Whitman also pointed to a recently released Gartner report that ranked 3PAR first in critical capabilities for consolidation, OLTP, virtualization/VDI, analytics and cloud use cases as well as first among high-end arrays.
Overall, HP storage revenue declined seven percent last quarter but Whitman claimed “storage significantly outpaced the market.” HP executives claim they picked up 10 percentage points of share in the all-flash market in the past year.
“Obviously the storage business is doing very well with 3PAR and all-flash,” said Whitman, who added that HPE will become more aggressive to take advantage of confusion created by the Dell-EMC merger.
If the largest storage array vendors that sell Brocade’s SAN switching are getting hit with declining revenue every quarter, that’s bad news for Brocade, right?
If you agree with that, then you’re missing the big picture, according to Brocade CEO Lloyd Carney. Carney said it doesn’t matter if people are buying their storage from big vendors or small, using flash or hard disk drives, or putting their data on premise or in the cloud. He says that if storage capacity grows, that’s good for Brocade because Brocade is one of only two vendors that sells the switching – Fibre Channel and Ethernet – that storage systems require. And storage capacity is growing, even if people are paying less for it.
“The knee-jerk reaction that a lot of us have is, storage dollars are coming down so something must be wrong with Brocade,” Carney said on Monday’s Brocade earnings call with analysts. “Well as long as storage capacity grows, Brocade is fine.”
At another point on the call, he said: “As long as storage capacity is growing, whether it’s Fibre Channel or IP-based, we will be successful.”
Carney’s optimistic outlook was justified last quarter. Brocade’s $588.8 million in revenue was better than its previous forecast, and its $324.9 million of SAN revenue was far above expectations. Overall SAN revenue was about the same as last year while most storage vendors saw revenue declines last quarter, and Brocade’s large director switch revenue improved 14% over last year.
Carney was less optimistic for this quarter, though. Brocade’s forecast of revenue from $550 million to $570 million is below the $589 million it did in the same quarter last year, and it expects SAN revenue to grow no more than three percent compared to an average gain of nine percent in this quarter. Brocade still predicts growth for the full year in 2016, however.
Carney said Brocade won’t get squeezed like the big storage vendors because it doesn’t face nearly as much competition. There are a bunch of smaller storage array vendors trying to take customers from the likes of EMC, NetApp, Hewlett Packard Enterprise, Hitachi Data Systems, IBM and Dell. On the SAN switching side, it’s Brocade and Cisco. And SAN switching is a small part of Cisco’s business.
“We are better positioned than the people who sell raw storage from a competitive standpoint,” he said.
Carney said Brocade’s plan to beat Cisco is to innovate – he pointed to non-disruptive monitoring and analytics added last quarter – and expand its partner base. Brocade recently broadened partnerships with Huawei and Lenovo with the intention of expanding its business in China.
As long as storage capacity expands, Brocade’s CEO expects to take in its fair share.
“Despite what is happening at EMC or NetApp or overall, people are buying more storage,” Carney said. “You yourself are using more storage. You’re sending pictures, you’re sending video content. So everybody is using more storage.
“Now, the price per megabyte or per terabyte of storage is coming down, because it’s such a competitive marketplace. However, the connectivity into that storage, the layer at which we play, is not as competitive a place.”
Nimble Storage’s drive for profitability took a major hit last quarter. Nimble, which was believed to be one of the smaller competitors eating away at large storage vendors’ sales, won’t hit break-even this quarter as it previously forecasted.
Nimble’s revenue of $80.7 million was up 37% from last year, but roughly the same as the previous quarter and below the hybrid array vendor’s forecast of from $86 million to $88 million. Nimble lost $11 million in the quarter – its largest quarterly loss since going public in 2013 — and increased spending this quarter will push back profitability indefinitely. Nimble forecasted revenue of $87 million to $90 million and losses in the $8 million to $10 million range for this year-ending quarter, typically the best sales period for storage vendors.
Reaction from Wall Street was potentially devastating. Nimble’s share price fell from $20.39 to $10.00 overnight – a drop of nearly 50% — and at least 11 financial analyst firms downgraded the stock.
CEO Suresh Vasudevan blamed the problems on two things. He said Nimble is affected more by large vendors’ price cuts as it moves deeper into the enterprise. And it has struggled to balance growth in the enterprise and its traditional commercial markets while trying to control spending with an eye on profitability. He said Nimble will beef up its commercial sales staff and is working on an all-flash array to help enterprise sales.
“We now believe that this approach of constraining investments at the same time that we diversify our customer base may have impacted our growth,” Vasudevan said on Nimble’s earnings call Thursday night.
He repeated what he has hinted at in the past – that Nimble will add all-flash arrays. Nimble has an all-flash expansion shelf and its arrays can pin data to all-flash volumes, but it lacks an all-flash product as more enterprises are looking to go in that direction.
“We have said that we have a very concrete plan for broadening our flash platform to compete in the entire space and that is still very much on target,” Vesudevan said. “You should expect to see us participating in the entire market with both hybrid flash and all-flash.”
The price cuts from the likes of EMC, NetApp and Hewlett Packard Enterprise could be a tougher problem to solve. Vasudevan really had no specific counters when asked his plans for dealing with that.
“We believe our business foundation remains extremely strong,” he said.
That belief will be tested in coming months. Meanwhile, the drastic drop in Nimble’s stock price is likely to attract some potential suitors who want to broaden their storage portfolios in the wake of the Dell-EMC deal.
NetApp’s latest earnings report told a familiar story.
NetApp Wednesday night said its revenue last quarter – although higher than expected – continued to decline with the vendor’s most established products taking the biggest hits. Its newer flash, cloud and software-defined software products are on the upswing but not nearly enough to keep overall sales up.
These same trends have been hitting NetApp and other large storage vendors for more than a year, and led to EMC’s getting swallowed whole by Dell. They contributed to NetApp switching CEOs from Tom Georgens to George Kurian in June without much change in result. And the trends will almost certainly continue for the foreseeable future.
NetApp’s revenue of $1.45 billion last quarter declined 6.3 percent from last year, and product revenue fell 12% to $819 million. For this quarter, NetApp expects revenue of $1.4 billion and $1.5 billion, or roughly a seven percent decrease from last year.
“Parts of our business are working well, some parts need improvement and other parts we must manage through declines,” Kurian said on the earnings call. “The IT spending environment continues to be constrained and the expectation for growth for the overall storage market has decreased to low single-digits.”
The parts that are working well, he said, are scale-out, software-defined, flash, converged and hybrid cloud storage. Those areas are growing about 20% a year while the traditional standalone hybrid storage market declines approximately nine percent, he said.
For NetApp, that means its Clustered Data OnTap (CDOT) operating system, hybrid cloud software, and all-flash arrays are growing while its traditional FAS with Data OnTap 7-Mode and its OEM products decline.
Kurian said 7-Mode OnTap shipped on about 30% of NetApp FAS arrays last quarter, down from around 65% a year ago. CDOT was on nearly 70% of new FAS systems shipped in the quarter, up from 35% last year. CDOT systems grew 95% year-over-year while 7-Mode shipments declined 60%. Still, CDOT overall made up only 17% of NetApp’s revenue compared to 15% in the previous quarter. That means 7-Mode customers are still not upgrading in large numbers.
NetApp’s All-Flash FAS array unit shipments increased 445% year-over-year following a price cut, controller upgrade program and seven-year extended warranty in June.
Kurian said Dell’s planned $67 billion acquisition of EMC is “clearly an opportunity” for NetApp because it will create confusion for customers and the channel. “The Dell-EMC transaction is yesterday’s solution to tomorrow’s customer problems,” he said. “It does not fundamentally address the hybrid cloud, it does fundamentally address the data management opportunity that customers are forced to deal with. It is really about trying to build efficiency in an integrated hardware business rather than the software-defined data center of the future.”
NetApp has $4.8 billion in cash, but Kurian didn’t sound enthusiastic about making acquisitions to bolster its product portfolio. When asked if he would consider that, he said NetApp’s strategy focused more on growing the emerging products it already has.
Nutanix launched its free Community Edition in June, so customers could try out the software for free on their own x86 hardware instead of purchasing an appliance from Nutanix or its OEM partner Dell. Through a technology partnership with Ravello Systems, the hyper-converged pioneer is now offering the Community Edition in the public cloud for approximately $1 per hour.
Nutanix senior director of technical marketing Greg Smith said more than 10,000 organizations have registered for the Community Edition, but Nutanix also received many requests to make it available as a virtual appliance in the cloud.
“We wanted to simplify the process by which a person could deploy Nutanix in a popular public cloud,” Smith said. “Ravello allowed us to take our existing software and stand up our whole environment on Google or Amazon.”
Ravello Systems uses what it calls a cloud application hypervisor to move multiple-virtual machine applications along with storage and networking to a public cloud.
Ravello director of product marketing Shruti Bhat said a user does not need an Amazon or Google cloud account to use the Nutanix Community edition. The cloud subscription and billing goes through Ravello. A Nutanix “blueprint” is published on Ravello’s catalog, and the customer clicks a drop-down box to publish on Amazon or Google. That provides access to the latest Nutanix Acropolis hypervisor and Prism management software and user interface.
Community Edition is a full-featured version of Nutanix software, but does not include the vendor’s support. Community users cannot upgrade to a licensed version of the product, but can purchase an appliance from Nutanix or Dell.
Pure Storage became the latest flash vendor to support TLC 3D NAND drives that lower the cost of solid-state storage. The vendor also expanded its Pure1 cloud-based management, adding predictive support and capacity planning.
3D TLC NAND will be available as an expansion shelf for Pure’s FlashArray//m Series arrays in early 2016. The shelves hold 44 TB and can be purchased fully populated or with 22 TB of capacity. Pure VP of products Matt Kixmoeller said the lower-cost NAND can reduce the cost of flash to about $1.50 per GB, assuming Pure’s average deduplication ratio of 5.4 to 1. Pure’s MLC flash costs around $2/GB, he said.
The TLC flash modules are 2 TB. Previous expansions shelves used 1 TB modules. Pure’s arrays use all flash with no hard disk drives.
“You will see us float more TLC into the product,” said Kixmoeller said. He said Pure will support TLC NAND inside its arrays and in shelves for older arrays.
“Now there are fewer workloads where you can claim you are not able to afford flash,” he added.
Dell, Hewlett Packard Enterprise, Kaminario and SolidFire also support 3D TLC NAND.
Pure is adding features to the Pure 1 Global Insight cloud-based management program it initiated this year. Pure1 looks at diagnostic data across Pure arrays in the field, scans against a library of known problems and can predict possible customer trouble, Kixmoeller said.
“It’s like anti-virus software. If a problem is detected, it’s codified into a signature,” he said. “Global Insight constantly scans arrays to see if anything has changed or is wrong.”
Pure1’s Capacity Planner identifies usage trends to forecasts consumption over time and estimate when a customer might need more storage. It suggests pre-emptive action for the customers.
Pure also added FlashStack converged infrastructure reference architectures for Oracle and SAP. FlashStack reference architectures include Cisco UCS servers and VMware virtualization software.
Datto, which sells backup and disaster recovery as a service, today closed a $75 million funding round although its founder and CEO says the vendor is already profitable.
The B round brings the startup’s total funding to around $100 million. Technology Crossover Ventures (TCV) was the sole venture capitalist involved in the round.
Datto sells its data protection products to managed service providers (MSPs).
“We don’t need this money to fund operations,” Datto CEO Austin McChord said. “We’ve been profitable since 2013. We’ll use this cash to make future investments in technologies and geographies, and we want to bring TCV into the fold.”
The Norwalk, Conn.-based company already has offices in the U.K., and this month moved into Australia and New Zealand. McChord said he intends to expand further.
Datto acquired cloud-to-cloud backup startup Backupify last December. Backupify protects data in Salesforce.com, Google Apps and Microsoft 365. McChord left the door open for more acquisitions but said Datto prefers to develop technologies in house. Possible new services Datto may develop include analytics and security.
“We store an enormous amount of data in our cloud, we’re up to about 160 petabytes,” McChord said. “That’s only valuable to our customers now if they have a disaster. So we’re looking at how we can bring value on an every day basis.”
McChord said TCV has a strong track record of working with maturing startups, and TCV general partner Ted Coons has a great deal of experience in the MSP market. Coons joins Datto’s board, along with Patrick Gray and Xerox CEO Ursula Burns.
Datto found itself in the news last month for its involvement with former secretary of state Hillary Clintons’ e-mail. Datto reseller Platte River Networks used a Datto server to store Clinton e-mails. Platte River turned over Clinton’s e-mail server to the FBI, and McChord said Datto has also cooperated with the FBI.
“We’ve done everything in accordance with the wishes of our client and the end user,” McChord said. “We’re working hard to protect them like any other customers. Both the end user and Platte River gave us permission to give data over to the FBI. We have done that, and it is no longer in our hands anymore.”