Pure Storage CEO: Rivals ‘Play A Commodity Game’

‘Our competitors play a commodity game. They’ve been marketing storage as a commodity, that customers should only care about price and nothing else. And we’re playing a high technology game. We invest in it like it’s high technology. It’s an entirely different business strategy, and it’s going to be very difficult, I think, for them to respond,’ says Pure Storage CEO Charles Giancarlo.

Pure Storage has moved far to differentiate itself from its storage industry competitors, a move that is now showing concrete results, according to CEO Charles Giancarlo.

Giancarlo, in his opening remarks Wednesday during the Mountain View, Calif.-based company’s first fiscal quarter 2023 financial analyst conference call, said Pure storage drove 50-percent year-over-year revenue growth, and saw its Evergreen and Pure as-a-Service subscription services business grow 35 percent over the same quarter last year.

“Enterprise expansion continues, experiencing strong growth year-over-year,” he said. “The Pure brand is now both highly recognized and highly respected in enterprise customers worldwide, and is considered a must-have in any storage consideration.”

[Related: Pure Storage CEO Outlines What It Means To Be A Software, Cloud Company]

Pure Storage’s R&D investment remains strong, Giancarlo said.

“[This demonstrates] our commitment to innovation and belief that data storage and management is high technology and requires the same level of investment as other critical technologies,” he said. “Too many competitors in our industry actively promote and invest in storage as a commodity.

He cited as examples of how businesses depend on Pure Storage for its unique technology for developing modern private and hybrid cloud solutions with the flexibility, simplicity, and agility required by modern operations and applications environments. The include the May release of both Pure Fusion and Portworx data services, and the company’s ability to provide an end-to-end storage-as-code platform to help create a cloud operating model to automate and deliver data services.

“Together, these two products allow customers to create a cloud operating model automating data management tasks and delivering customized data services to developers and applications through a simple unified control plane,” he said. “With these products, customers will be able to modernize their data center operations, avoiding existing highly manual and costly operations for both traditional and cloud-native workloads.”

When asked by an analyst about how the competitive landscape is changing, Giancarlo said any changes have been relatively minor and that Pure Storage tends to be competing against the same set of products in the same type of environments with the same set of customers.

“I think customers believe that we have to be in any competitive bake-off that they may be performing,” he said. “[But] I haven’t seen anything terribly substantial from the competitors in this space. ... We’re just playing a different game than our competitors. Our competitors play a commodity game. They’ve been marketing storage as a commodity, that customers should only care about price and nothing else. And we’re playing a high technology game. We invest in it like it’s high technology. It’s an entirely different business strategy, and it’s going to be very difficult, I think, for them to respond.”

On the product side, Pure Storage continues to help businesses adopt all-flash data centers and expand into higher performance Tier-0 workloads, Giancarlo said during his prepared remarks.

“With our unique DirectFlash technology, we’re using QLC to close the price gap with magnetic storage,” he said. “Using the latest developments in solid-state storage to overtake the lower-cost magnetic market requires sophisticated software and years of experience. We believe we have a multiyear advantage in delivering this price performing QLC technology.”

Businesses are increasingly concerned about the environmental impact of IT, and Pure Storage is an important part of helping reduce environmental footprints, Giancarlo said.

“Customers that deploy Pure are able to reduce direct energy usage in their data storage systems by up to 80 percent,” he said. “They are also able to reduce their data center’s contribution to e-waste. More than 97 percent of Pure Arrays purchased six years ago are still in service benefiting from our industry-leading Evergreen program, which actively reduces e-waste while also saving customers’ time, money, and effort.”

Businesses are still seeing adverse impacts from macroeconomic concerns, although the impact on Pure Storage is smaller than that of the industry as a whole, Giancarlo said.

Pure Storage’s focus on a simplified and efficient architecture has helped reduce cost and waste and in turn alleviate supply chain concerns, Giancarlo said.

“Our architecture and world-class hardware design team means that we can quickly address component supply disruptions with design modifications,” he said. “And as we’ve stated before, we have invested for years in strong relationships with our supply partners and flexible, multi-sourced global operations.”

When asked by an analyst about the impact of supply chain issues on Pure Storage, Giancarlo said his company faces a constant stream of challenges from a supply chain perspective.

“I would say that we’ve minimized to the point of almost nonexistent the effect on our customers,” he said. “But it’s certainly affecting us a lot. Our teams are very, very busy, and I want to take my hat off to them because there’s a lot of work that goes into this. ... Because we design our own hardware rather than most of our competitors [who] are using commodity parts, they have less choice, less flexibility. So it gives us greater flexibility.”

Inflation is another major customer concern, and will continue to be for some time, Giancarlo said in his prepared remarks. However, he said, inflation’s influence on IT customer behavior and on Pure Storage is not as it is in other industries.

“First, enterprises have now made digital transformation top on their list for the success of their organizations,” he said. “Next, we believe Pure has entered a second phase of growth enabled by an expanding portfolio of highly differentiated and leading products as well as sales and business models spanning commercial, enterprise and cloud customers.”

Russia’s invasion of Ukraine and in particular its impact on energy will dampen European economies in the near term, but European IT investments needed to make up for losses in other areas will remain strong, Giancarlo said.

Furthermore, higher energy costs are already increasing demand for IT equipment that is energy efficient, something that Pure excels in,” he said. “We believe that this represents another opportunity for Pure to pick up more market share. The bottom line is that technology is now the number one driving force of enterprise strategy and business transformation.”

The bottom line, Giancarlo said, is that Pure Storage is positioned to see secular growth and be less affected by this economic cycle than its competitors.

“Overall, we have never been more optimistic about Pure’s opportunity and growth prospects,” he said. “Despite pandemic, war, and market turmoil, Pure has thrived and grown. We have only gotten stronger over these last several years, and we expect to delight ever more customers in the years ahead.”

When asked by an analyst why Pure Storage is so upbeat despite the macroeconomic factors, Giancarlo said the company’s stronger and broader portfolio is bringing customers a much greater set of opportunities.

“And just to address your question, I would say that the way we’re looking at the macro is a little bit different,” he said. “I would say we have not yet seen the macro affecting us or the customers that we speak to, but we are not blind to the fact that the macro and the possibility of economic slowdown can affect us going forward.”

For its first fiscal quarter 2023, which ended May 8, Pure Storage reported revenue of $620.4 million, up 50 percent from its first fiscal quarter 2022 revenue of $412.7 million.

That beat analyst expectations by about $99 million, according to Seeking Alpha.

This included subscriptions services revenue of $219.2 million, which was up 35 percent over that of last year, while the company’s subscription annual recurring revenue was $899.8 million, up 29 percent over last year.

Broken down another way, product revenue for the quarter was $401.2 million, up from $249.9 million, while subscription services revenue was $219.2 million, up from $162.9 million.

Pure Storage also reported a GAAP net loss of $11.5 million or 4 cents per share, down significantly from the net loss it reported last year of $84.2 million or 30 cents per share. On a non-GAAP basis, the company reported net income of $79.2 million or 25 cents per share, a huge improvement over the net loss of $360 million it reported last year.

The non-GAAP earnings per share beat analyst expectations by 20 cents, according to Seeking Alpha.

Looking ahead, Pure Storage expects continued demand strength in the second fiscal quarter with estimated revenue to be approximately $635 million, up about 28 percent over last year. The company also expects non-GAAP operating profit to be approximately $75 million in the second quarter. Pure Storage also raised full fiscal year 2023 revenue guidance to $2.66 billion, up about 22 over last year.