Feeds

Ellison's storage Pillar sits at fork in the road

Finance, founding and two choices

The essential guide to IT transformation

Comment Larry Ellison founded Pillar Data on the premise it would become the next EMC or NetApp, and go through an IPO or be bought. On its way there it sees a new system that could replace 100 NetApp filers coming by 2012.

This perspective on Pillar was given by its CEO and CFO at a customer summit in Phoenix, Arizona on March 10. CFO Ned Hayes said: "We aspire to go public at some point in time and we look at the IPO market very seriously from quarter to quarter." He also said Pillar faced a fork in the road, with an IPO on one side, and being bought by a large incumbent on the other.

Who? Any one of Dell, EMC, HDS, HP, IBM, Netapp etc with Pillar's Axiom technology and products replacing the existing mainstream product set. A Pillar spokesperson said the firm wasn't actually talking to any incumbent about such an acquisition.

Currently the IPO route is depressed in terms of numbers of IPOs, valuations of companies and the returns for investors after IPOs. It's not a good time right now, but Larry is in this for the long term. Hayes was giving out a message that Ellison does not want to pawn Pillar off to the market at the first opportunity but wait until the market comes to him wanting to buy it at a valuation he agrees with.

Hayes said Larry Ellison has pumped several hundred million dollars into Pillar through Taco Ventures in the past decade. It has not been funded like a standard start-up with four to six sequential rounds of funding from groups of investing organisations en route to a relatively quick IPO flip so they can get their return. Larry wants a proper valuation for Pillar and the funding support is there if the recession proves to be a double-dip one. Hayes said: "We have Larry's capital and can wait."

There is only one investor so board-executive relationships are simple and direct.

Ellison, we heard, did not buy Sun for its storage, the majority of which is OEM'd from HDS and LSI. Larry hates OEM deals and, pretty soon after the acquisition finalised, the HDS USP resale deal was canned. How long has LSI got? Oracle wants to build a great system to run Oracle and its clients, and the 7000 line is the one Oracle seems to be focusing on. Pillar wants to build a great storage system to run applications in general.

We can surmise that several hundred million dollars is north of $200m but not as much as $500m, otherwise 'half a billion dollars' would have been mentioned. Let's settle on $300m as a round number. The target is to get it to become self-sustaining. Cash flow break-even will occur this year or next. A customer asked Hayes how close Pillar was to its target gross margin (GM) - the reply was that "we're on the right trajectory. First sales generally have a lower GM. Later service, upgrade sales and repeat business have a better GM generally. Next-generation platforms are moving away from proprietary hardware to off-the-shelf components. That gets us much closer to our target GM." Pillar recorded its highest GM in 2009.

My thinking here is that Pillar needs the new development project kit to reach its target GM and that's not going to happen until 2012 or so.

The total addressable market for Pillar is said to be $30bn now, composed of hardware (HW), software (SW) and services, and $40bn in a few years time with a near-15 per cent compound annual growth rate, outpacing the storage market. Top line growth in 2010 is set to be 50 per cent upon 2009. Repeat business is said to be 60 per cent a quarter.

The company cut costs in 2008 when the recession struck and went down to a 325-person headcount. It's now up to 340 people and wants to hire more. Hayes said it is developing a new platform with radical, massive improvements in its storage characteristics.

Boost IT visibility and business value

Next page: Paso and Napa

More from The Register

next story
Pay to play: The hidden cost of software defined everything
Enter credit card details if you want that system you bought to actually be useful
Shoot-em-up: Sony Online Entertainment hit by 'large scale DDoS attack'
Games disrupted as firm struggles to control network
HP busts out new ProLiant Gen9 servers
Think those are cool? Wait till you get a load of our racks
Silicon Valley jolted by magnitude 6.1 quake – its biggest in 25 years
Did the earth move for you at VMworld – oh, OK. It just did. A lot
VMware's high-wire balancing act: EVO might drag us ALL down
Get it right, EMC, or there'll be STORAGE CIVIL WAR. Mark my words
Forrester says it's time to give up on physical storage arrays
The physical/virtual storage tipping point may just have arrived
prev story

Whitepapers

Top 10 endpoint backup mistakes
Avoid the ten endpoint backup mistakes to ensure that your critical corporate data is protected and end user productivity is improved.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Backing up distributed data
Eliminating the redundant use of bandwidth and storage capacity and application consolidation in the modern data center.
The essential guide to IT transformation
ServiceNow discusses three IT transformations that can help CIOs automate IT services to transform IT and the enterprise
Next gen security for virtualised datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.