Pure Storage Slumps in First Day of Trading

8 Oct 2015 | Author: | No comments yet »

Pure Ambition: CEO Dietzen Chats Following PSTG Debut.

SAN FRANCISCO — Newly public companies have not fared well in the stock markets so far this year. Following the opening of trading this morning of (PSTG), the upstart storage vendor that is using NAND flash memory chips to challenge incumbents EMC (EMC) ant NetApp (NTAP), CEO Scott Dietzen was kind enough to take a few minutes to talk with me at the New York Stock Exchange. The latter point will be heavily debated in days to come given the recent dearth of tech IPOs and the growing herd of richly valued unicorns that—at some point—need to provide an exit to their investors. But the mood of the hundred or more Pure employees, bankers and well wishers gathered in a boardroom at NYSE, which was festooned with the company’s orange color scheme, were upbeat, if not exuberant. Now comes the hard part: Peer Nimble Storage (NMBL) is down about 30% from its IPO on December 13th of 2013; and Violin Memory (VMEM), another all-flash upstart, is down about 76% since its debut on September 27th of that year.

Said Dietzen, who had on an orange tie and orange socks, “We wanted something that would stand out.” IBM (IBM), EMC, and NetApp are all blue, he pointed out. That raises questions about how some of the big and prominent companies waiting to go public — like the credit card processor First Data and the supermarket operator Albertsons — will fare. Though analysts have questioned whether hiccups in Pure Storage’s public debut represented a continued slowdown in the red-hot tech private market, Mr. NAND chips had cost four times as much as disk a few years ago for comparable capacity, but have now come down to less than the cost of disk, he observed — proof, to Dietzen, that it’s worth riding the cost curve of Moore’s Law and semiconductor progress as it makes NAND ever more efficient.

Much of that comes from reducing operating expense for storage, he claims, which is generally viewed to be a bigger cost for IT than the up-front purchase price of technology. By contrast, traditional disk systems take two years to provision and transfer data, and then another two years to decommission when upgrading equipment, he says, because of the complexity of those systems.

Which to him means that enterprises are spending four out of every six year replacement cycle just setting up and taking down equipment rather than actually using it. What happened to Fusion-io, which got bought out last year by SanDisk (SNDK), after struggling financially, and Violin, which is trying to make a comeback under CEO Kevin DeNuccio. “They got the flash part right,” but as far as everything else they were supposed to deliver — greater economy, ease of use, etc. — “they didn’t deliver any of those things,” he claims. Dietzen says the focus has been on greater software compatibility with existing applications and systems software, to smooth the path for customers coming from existing enterprise equipment.

Dietzen regards Nimble as being in a different part of the market entirely. “they are playing to capacity,” he says, implying low-value, commodity storage, versus the high-end, high-reliability systems Dietzen says Pure is focused on. Nimble, for whom Dietzen has a high regard as a company (he speaks warmly of CEO Suresh Vasudevan) uses a blend of disk and flash, rather than the “all-flash” approach of Pure.

As for EMC, the response is already evident. “You see they’ve been promoting Xtreme-io more and more,” he observes, of the EMC all-flash offering. “That’s an admission that the old stuff is less and less sufficient for the task.” Pure had $159 million in revenue in the six months ended in July, up 169% from the prior year’s level, and closing in on the $227 million that Nimble made in the fiscal year that ended this past January. But Pure has a ways to go to catch up to Nimble on profitability, having lost $112 million in that period, a negative 70% margin, versus Nimble’s loss of $96 million, or negative 42%. He notes, “We are are growing much faster than Nimble,” whose sales are expected by the Street to rise 48.5% this year. “We are are growing at this meteoric pace,” he says. “We’re fast than a lot of the names out there, such as Palo Alto Networks (PANW).” “For each additional dollar of operating expense we’ve taken on, we have grown an additional $1.50 of revenue,” he points out. He won’t say when or at what threshold of sales the company will reach breakeven. “Our intent is to continue to invest, but also to continue at the same time the productivity improvements we are bringing about.” “If we slowed down our pace of growth, we could be profitable much more quickly. Pure has 1,000 employees at the moment. “Growth is expensive.” If you want further background on Pure, an interview I did with him in May of last year still has some interesting background on the company’s approach and the storage industry.

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