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Last week, Pure Storage, which sells gear companies use to save their most important data, reported the results of its first quarter as a public company and bested the expectations of analysts and shareholders alike. Its shares spiked by nearly 7 percent on Friday.
The numbers tell a tale that may not have been apparent two months ago when Pure’s shares fell 6 percent in their debut on the New York Stock exchange. Sales rose 167 percent year-on-year, and the quarterly loss at 18 cents was 12 cents better than analysts had expected. The company also boosted its outlook for the current quarter.
Pure sells data storage systems based on flash memory chips — essentially the same chips found in a common USB thumb drive — instead of hard drives. Over the last few years it has challenged established enterprise storage incumbents like EMC and NetApp. Its speciality is in what’s known, in industry lingo, as tier-one storage, the gear a company uses to store its most important and frequently used data, and which represents the sweet spot in the enterprise storage business. Pure CEO Scott Dietzen frequently shares anecdotes in which customers save millions of dollars by replacing old disk-based storage gear with new flash equipment that costs several orders of magnitude less.
The jury is still out on Pure’s IPO. It was the third in a string of companies with flash-based technology to IPO — the first two were Fusion-io in 2011 and Violin Memory in 2013 — over four years. Both of those offerings faltered, and investors have seemed wary of getting burned a third time.
Pure’s shares are still trading below $17, the level they priced at in the Oct. 7 IPO. And they haven’t been helped by Nimble Storage, a sometime Pure competitor that went public in 2013. Last month, Nimble badly missed expectations in a quarterly earnings report. Its shares fell an astonishing 50 percent the next day. Pure’s shares fell alongside Nimble’s, declining by 30 percent over several days before recovering.
Re/code caught up with Dietzen a few hours after Pure’s earnings report. Below is an edited transcript of the conversation.
Re/code: Pure just posted its first quarterly earnings report since going public. The markets appeared to like what they saw. What was the highlight for you?
Scott Dietzen: We’ve made a bunch of the right bets. Six years ago we made the bet that tier one storage in the data center was going to move to all flash and that we could bring the cost of flash memory down to below that of mechanical disks. We uniquely crafted a recipe that allows us to take advantage of those two trends, and we’re seeing the fruits of that labor in the marketplace. Our competitors missed both trends.
Let’s talk about the competitive landscape. We’ve recently seen Nimble Storage decline seriously after it missed an earnings report, and your shares came down along with it perhaps in sympathy. What do you attribute that to?
Our job is to grow the business and we’re going to let the professionals worry about the share price. We’re on a run rate to half a billion dollars in annual revenue and still growing at north of 100 percent, and we’re not aware of anyone else growing that fast. … We rarely compete with Nimble. It’s a hybrid storage technology player. Most of the companies that are mixing flash and hard disks are playing down-market in the tier two storage space, selling to smaller customers. Tier one is going all-flash because flash costs less than disks. I think it’s hard for someone like that to compete without a strong play in the tier one portion of the marketplace.
Your biggest competitor in the tier one storage space without question is EMC. It claims to dominate the flash storage portion of that business with its XtremIO brand. How do you see the marketplace there?
We see EMC more than anyone else. When we go up against EMC and the customer compares our product to theirs we win about 70 percent of the time. And when we lose there is usually financial engineering involved. … We’re not large enough today to contest every deal that EMC is in. But EMC is the vendor that has the most to lose from the transitions to flash and to the cloud that are under way.
You compete directly with EMC’s XTremIO and its older disk-based products. But how has Dell’s proposal to take over EMC affected your business, if at all?
I think the Dell-EMC transaction will go through despite the risks I’ve read about. I think there’s a short-term opportunity to capitalize on the confusion that will result. Typically in private equity deals you expect some products to die as the business gets combined. I think we’ll see some headcount reductions there too. We’ll also win over some [third-party] new channel parters who are nervous about EMC as it becomes part of Dell. It will take a year to 18 months for the dust to settle, but I expect EMC to remain our top competitor. We’ll be fighting them for lead position in the marketplace for the next five to 10 years.
With so much of the storage business consolidating under the Dell umbrella in the next year or so, there’s a case to be made that Pure might be a better fit under the umbrella of a large IT company like, say, Hewlett Packard Enterprise. What do you think?
I think Pure is very much in a position to give Dell and EMC strong competition in the storage space. But let me be clear: We complement Dell’s server business, and we complement VMware, too. We’re close to both of them, but we intend to remain a strong independent player. I don’t think the Dell-EMC merger is taking place from a position of strength. We’re in a strong position because we anticipated the disruptions coming from both flash and the cloud. We’ve also got a two-year technology lead on the incumbents. That’s a recipe for independent success.
This article originally appeared on Recode.net.
