'Not normal': Dell and NetApp price war puts crimp in Pure Storage revenue growth

Brexit UK and Japan 'more difficult trading environments'

A price war led by Dell has clipped the wings of Pure Storage, as a wider slowdown in enterprise spending and uncertainty caused by the protracted US and China trade war continue to hurt the storage sector.

In the earnings call last night, Pure Storage CEO Charlie Giancarlo reported a "double-digit drop in pricing each of the last two quarters", opining: "That's just very unusual. It was obviously difficult to predict that sort of thing, because it's not normal."

The company attributed the price falls largely to competitive pressures led by Dell and NetApp, vice chairman David Hatfield said, adding: "We won't lose [deals] on price," particularly in large enterprises.

Pure reported $428.4m revenues in Q3 of fiscal '20 ended 31 October, up 15 per cent year-on-year but less than its previous low-point forecast of $434m. Net loss was $30m, slightly worse than last year's $28.2m.

Pure said the UK – due to Brexit – and Japan were more difficult trading environments and it also faced some difficulties in the US.

The company said price competition was solely responsible for the Q3 revenue miss – it shipped all the product units it expected to ship. Giancarlo claimed in prepared remarks the growth was "significantly faster than our major competitors and the market as a whole [but] continued pricing declines, which were higher than we expected, accounted for the gap to our revenue expectations at the beginning of the quarter, although we are also seeing signs of a more challenging global business environment as commented on by other large infrastructure suppliers".

Dell, Cisco, NetApp and HPE have all reported similar dynamics.

Price plateau

Sales progress in Q3 included 350 new customers – taking Pure's total customer count to 7,000. Government segment revenues doubled and the newly introduced FlashArray//C saw the fastest-ever growth of any Pure product pipeline, admittedly in less than a quarter's availability. Talking about FlashArray//C sales, Giancarlo said: "We have seven- and eight-digit deals in the pipeline for this product, so… clearly it's something that stands out."

Giancarlo predicted the price declines will stop: "But now that pricing is where it is, that bodes well for volumes as we go forward and it can't continue to drop at that rate.

"There is no doubt that when things turn we're going to be very well positioned to capitalise that in the enterprise."

He also signalled a product launch was in the offing: "We are anticipating our File Services coming out mid next year... The expectation is that it will improve our growth."

Giancarlo echoed NetApp's Data Fabric on-prem/cloud data services architecture in his prepared remarks: "Pure is transforming storage to a modern, more cloud-like model helping our customers to run their operations as a true, automated, storage-as-a-service cloud, delivering consistent data services seamlessly across on-prem and public cloud infrastructure."

Revenue guidance for the fourth quarter is $484m to $496m, with the $490m midpoint representing 16 per cent revenue growth. Pure said the guidance takes into account two quarters of pricing declines and a more challenging global large enterprise environment.

Full-year guidance is $1.635bn to $1.647bn, 21 per cent up on 2018. Originally Pure had targeted $1.735bn, which was revised to $1.68bn in Q2. Now that forecast has been lowered again.

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