Follow up on PSTG

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been posting too much today. Simply because too tired to focus on work (tough day in court - of course the judge was absolutely wrong! of course) and much easier to focus on stock.

We have spoken in the past, with some great contributions here about how PSTG cannot be evaluated in a static frame. The price of NAND will continue to fall and the use cases for flash will continue to increase even as PSTG improves its software over time.

There are also other future markets like second tier.

In regard to FlashBlade there is an issue we have not discussed and that is from a previously linked to article: "By using these GPUs to simulate different neural networks using these large data sets, experts have found that you start to run into bottlenecks as the GPUs get faster and the data sets get bigger and richer.

As we know the GPUs are only going to get faster and the data sets are only going to get bigger.

As this happens it makes a product like FlashBlade more and more valuable relative to existing options.

At least that is an operating theory. A good one I think, but not one we have specifically discussed before.

Tinker

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I think NVMe is more interesting than FlashBlade. The underlying storage technology is subject to change, just as lithium-ion batteries will eventually be displaced.

If I understand NVMe correctly, and I think I do, at least well enough, it’s agnostic to the storage technology in use, not the device, but the underlying technology. The device has to be compatible and able to accept a fast ethernet connection, but the storage medium can be anything. So when graphite microtubes (or whatever) replaces flash, no big deal, NVMe will connect and move that much more data that much faster.

From my point of view this is the real disruptive technology PSTG has to offer.

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NVMe will be with all major vendors within a year. In fact, it is already offered by EMC, and IBM says that it does not need NVMe in one of its products because it is doing everything in software and thus no need for an intervening interface that would actually slow things down.

In another product IBM uses infiniband (been around for while) and says it does for the product exactly what NVMe does. I have my doubt in regard, but that is what IBM is saying through technical people on uTube. I do not know if these two IBM products are all flash or not.

I do think that NVMe makes flash even more valuable as it can be used at higher rates of speed and further parallelism.

The standard is of course still being finalized but that has not held PSTG back.

Tinker

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https://www.theregister.co.uk/2018/01/09/three_challenges_fo…

Fascinating, good break out of the big 8 in storage, including Nutanix and Pure.

Pure has a very brief entry:

"Pure Storage
Pure Storage is a shared, all-flash, external array supplier. It has no HCI presence. But it does have an actively pursued path to NVMe over Fabrics and a new CEO. The FlashBlade development could well use QLC flash if and when that emerges in the shape of usable chips.

It has no direct involvement in data management software, but it does have data management partnerships, like one with Cohesity.

Pure is basically a two-product company with great ambition. We would not be at all startled to learn that it has an HCI research project."

Whereas NTAP:

"NetApp
Newly confident NetApp enters 2018 in a stronger competitive position than it has been in for several years. It has charged into server SAN/HCI with its SolidFire-powered product and has a good handle on and pathway to NVMe and SCM technology.

The whole Data Fabric scheme positions it nicely for the public cloud and the Microsoft Azure ONTAP win in 2017 was a spectacular coup.

We wonder if the company might introduce a Data Fabric product in 2018 which orchestrates ONTAP, SolidFire, StorageGRID and E-Series arrays, and provides some kind of overall management function."

You can read the other entries yourself that are more detailed for EMC, Nutanix, IBM and the like. NVMe is well represented in all these companies.

When comparing PSTG to the rest you can see why PSTG may have been trying to sell itself 6 months ago. PSTG has two products, no play in data management or HCI. It relies on having the best in breed product. And has done remarkably well with its limited offerings.

It is another perspective to see PSTG by. Companies like PSTG, in a market like this, usually due end up being acquired. However, PSTG has a relatively large marketcap and may help it stay independent if it can continue to grow as it has, and increase its product offerings. I am not sure, however, that doing what everyone else is doing is the way to go.

But reasons why valuation may e less than we think is proper. The smart money sees PSTG like this, whereas we have a more myoptic focus on the company (meaning near sighted, we look at it as the tree with a garden of trees around it, and not so much in the larger forest of things).

Tinker

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Tinker,

Interesting read although I’m not sure how they can reconcile this statement about how NetApp “has charged into server SAN/HCI with its SolidFire-powered product and has a good handle on and pathway to NVMe and SCM technology”

From this article posted by volfan84

https://www.theregister.co.uk/2018/03/02/pure_billion_dollar…

In the chart that breaks out quarterly revenue NetApp Solidfire is struggling and “trailing the pack”. NetApp’s other storage A-series, Pure, and IBM are blowing Solidfire away.

Darth

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Yes. I had to switch from the big screen to my Mac screen to see it better. Need to bring in the new Acer monitor I think to replace the old (have unused monitors just sitting around…disgusting, shows how the world has changed) but looking it in more refinement, it looks like SolidFire is basically dead last. A series from NetApp however booming!

Of course, much of that booming! is simply selling into their existing customer base and doing little to increase top line growth, as they would be selling into their established base (just a little bit slower) with spinning disks.

IBM is clearly making a come back of sorts as they had been in decline.

Unbelievable the decline in EMC sales! I have to think something is amiss there. Does EMC have another AFF product they are pushing…if not, then you can see that all the marketing hype out there is for crapulence. EMC has been talking a game of being the dominant power in the storage world. Talking the same with VMWare vs. Nutanix.

I believe that there is so much marketing talk going on out there that is misleading the even experts in the field get it all mixed up, and that may be what happened here.

Tinker

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Tinker, very interesting observations on the industry. I am long PSTG. I have been reading quite a bit about competitors and the storage market in general. Long story short, about 2 weeks ago I took a position in NTAP. In that brief period NTAP is up over 12% while PSTG is down. I think this article explains why.

I want to emphasize that this is a very short term situation. I plan to hold PSTN but keep a close eye on it. I do not plan to keep NTAP.

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Guys,
The graph is for flash…not for HCI.

Solidfire is the basis for netapp HCI.

When netapp bought solidfire, it was not a smooth transition…lots of grumbling between the sales forces and initially poor direction was given on how/when/where to lead with solidfire vs legacy netapp solutions. If a company believes enough in the product they acquired, usually you see them stick with it and give it a bigger emphasis in both marketing and sales comp for their reps, and the ramp up occurs in 2nd and 3rd year.

EMC in similar situation as they already had a very broad portfolio and then dell bought them. Dell had equallogic and compellant and their own versions of hci plus they were and still are top resellers of nutanix. Dell now owns 80 percent of vmware so they lead with vsan and vxrail hci solutions. Add it all together, along witb still-fragmented sales forces (but improving) and you can see why they had trouble with their flash story.

HPE had a decade-long popular storage solution called EVA…and i remember when they bought 3Par that it was similar to solidfire acquisition…it took time for whole company to pivot behind 3par as the top storage solution in their portfolio. 3Par does all flash now. All these top vendors have all flash.

It is just that Pure, no pun intended, is a pure play for flash…it is what they are known for.

Your comment on not seeing the bigger forest view is what i was trying to say a couple weeks ago on this board: I think there is still room to run here, but Pure has limited TAM just because all these other companies can potentially undercut their pricing if needed. Why? Because DellEmc can sell the flash cheaper and make it up on maintenance contracts or dell servers or vxrail hci. HPE can go low on the flash in order to sell their new server infrastructure (Synergy) which they refer to as composable infrastructure. HPE can also still sell servers or simplivity hci or their nimble storage line.

Pure is just a piece. For new solutions, many clients will opt to deal with one vendor for the servers and storage and even the networking.

Cisco can offer ucs servers, networking and hyperflex hci and can also partner with netapp for storage or in their converged flexpod solution.

HPE can do servers, storage, and networking combined also. (A mix of aruba, legacy hpn, or can resell arista).

Dell can provide all that too, although their networking is a smaller unit today.

I took a small position in Pure for a few reasons: I do see room for more growth just by taking more of flash market, plus, like nutanix, they have stayed in business and now have more and more references to tout, and so likely have another big round of new atbats with enterprise clients that previously didnt want to gamble on them as a smaller upstart. Their reps have limited widgets to sell and there is about 25% more reps out there now. All those other vendors can hit their sales quotas with a more varied mix from larger portfolios.

I also like their hybrid cloud capabilities.

But I think they are in danger of getting too big to acquire and will also hit the netapp market cap ceiling eventually. Hopefully Cisco buys them, or maybe they merge with Arista…who knows.

I think they can double their sales in next 2-3 years and unless they have produced a new niche/widget by then, i probably tap out and sell.

-Dreamer

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Thanks DreamerDad. I do appreciate your contributions here. I like to get to the bottom of things, and stock investing is a multifaceted discipline where you have to take together multiple perspectives and data points to get somewhere nearer the truth. Industry insiders and experts are very important, but they can also be contrary indicators creating some of the best investment opportunities.

So when i say something, it is simply to test ideas and get others to respond back so we all learn as we go. My mother and my ex wife hated such things, as for example I almost bought my first car, either just out of high school or college, I forget now. Plymouth Horizon. Something in my situation back then that would not have worked out real well. But i had to ponder the ramifications, costs/benefits and such, argue against what my mother common sensically was telling me, and then only at the last minute go…okay, perhaps I wont get the car.

So don’t mind me.

I think we put out excellent perspective, looking at this from many angles. There is a reason the stock is cheap, I mean it is. And there are two sides of the argument, TAM is limited (SAM is more applicable here), but the bull side is so what! Pure will continue to expand its product capabilities, flash prices will continue to fall thus expanding the SAM even more, and AI, analytics and such will require a new generation of storage, and Pure is best positioned to provide that.

Plus, Pure does not serve tier 2 storage as of yet. That is one product on their roadmap that we are aware of. Will use lower quality flash, and thereby require higher quality of software to make it work.

So still multiple opinions can be drawn, but excellent to take in the whol forest. And your posts have provided great context.

Thanks Dreamer.

Tinker

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Well no matter what you want to call Netapp Solidfire, it’s apparently not selling very well.

https://www.netapp.com/us/products/storage-systems/all-flash…

That’s not a knock on all of NTAP, I don’t know enough about them. Here’s the A-Series NTAP storage that is selling well.

https://www.netapp.com/us/products/storage-systems/all-flash…

It seems that with Solidfire, NetApp acquired them for the software. They are integrating what they want from that into their All Flash Arrays and letting the hardware storage side of that acquisition fall away in favor of their other products. So with NTAP, the rise of Flash is an opportunity for sure, but it also comes with a cost elsewhere in the business portfolio including legacy storage. This might explain why Even with the remarkable growth of the flash industry they only managed overall revenue growth of 9%.

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IBM, never one for a standards based approach. A bit before the 360 was dethroned by distributed UNIX servers, I still remember the PS1 and there micro whatever architecture as an alternative to the Windows PC. Sold on the claim that x86/Windows was architecturally constrained from ever achieving the speed and bandwidth available with the PS1. All lies.

My guess this is just another stab at trying to harness their customers with a proprietary technology and high cost switching costs.

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Dreamer,
PSTG may get undercut on acquisition cost, but life-cycle cost will be a hard pull for other vendors with their “Evergreen” pricing model.

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Dreamer,
PSTG may get undercut on acquisition cost, but life-cycle cost will be a hard pull for other vendors with their “Evergreen” pricing model.

=====

It looks like a solid program, for sure. And if I am pushing Pure with my clients, I would certainly look to cover Evergreen benefits so they have choice in how they consume their Pure Storage.

However - consumption models that tout “on-prem hardware with cloud pricing” are fairly common across all the top DC partners. HPE does this, DellEMC, Cisco, NetApp via distribution/partners.

I went to a training on a flexible capacity consumption model for one of Pure’s competitors back in Jan 2016, as an example.

-Dreamer

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Dreamer,

Touting and delivering are two different things. Pure does deliver.

What I find interesting on the flash sales chart we have discussed is that only Pure has a steady and systematic climb upward. All others are all over the place. And you have to admit that much of the sales growth in flash for NTAP is simply selling into their own base. It is not taking any marketshare from Pure. In fact, NTAP’s growth rate is so low that it appears it is taking little marketshare outside of its base. Some, yes, but not a lot.

Pure has done remarkably well as a neophyte company with little product offerings. Offerings that we will all admit have improved and will continue to improve over time.

I do understand the SAM issue. PURE’s serviceable addressable market only goes so far with its current capacities. FlashBlade may be a market buster or bust. Thus risk. But PURE is continuing to expand its product offerings and capacities, it is leading the market in roll out of the new standard, and as flash prices continue to fall, the SAM will continue to increase.

So stuff to think about, given the low expectations in the stock as evidenced by its current valuation.

Again, a large Tinker Ratio. The key is understanding if past business results were just low hanging fruit and PSTG will not run into more of a wall.

Tinker

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Touting and delivering are two different things. Pure does deliver.

I didn’t see anywhere that they broke out Evergreen as a % of their revenues. Doesn’t mean they didn’t, I just haven’t seen it.

I was replying specifically about the fact that all the major vendors have consumption models…to find this out you only have to google “consumption” and add “vendor name” and you come across:
https://www.hpe.com/us/en/services/flexible-capacity.html
https://www.dellemc.com/en-us/flexibleconsumption/index.htm
https://www.cisco.com/c/dam/en/us/solutions/collateral/cloud…
https://www.netapp.com/us/how-to-buy/ondemand-consumption.as…
etc…

You replied with statements around their Flash success. My comments weren’t about flash.
In fact I earlier listed my 2 main reasons I would (and did) open a small position is because since they are so singularly-focused and flash is growing, I expect they have more growth left. That and they have a solid hybrid cloud strategy. All the other top vendors have deeper portfolios and therefore split sales comps/goals and clients won’t necessarily think of those vendors for flash…but when they think of Pure they will think “flash”.

It seems no matter what I say about Pure or Arista my points are not getting across. I will write that up as poor communication on my part.

If you started investing in Amazon in 2010-2012 because you thought kindles were awesome you would have enjoyed great returns. If you invested because you saw the growth promise of Amazon Video, e-commerce growth, and AWS potential, you would have made the same gains as the person that just thought kindles were cool. So you can be right and wrong at the same time…or make a good stock call but for the wrong reasons.

I wore an HP shirt to the airport once, before HP Inc and HPE separated. I only had the shirt because they were a partner that I sold servers and storage solutions from. A guy walks up to me, points at my shirt and says “hey…HP…love their printers!” I wasn’t in the group that sells printers. But he is correct…that was HP, but my wearing the shirt had nothing to do with printers.

I am trying to say that Pure may indeed be a good investment, but the reasons for why it is may not be what has been touted in some of the posts here, and I am just offering my take on it. Flash is a trend and great stuff…but while Pure is singularly focused there, they are not the only provider of flash storage by a long shot. I am looking at nuances with sales force quotas and complex/confusing portfolio lineups of competitors to justify my investment. If clients love buying flash, you can be sure EMC, NetApp, HPE, and Hitachi and IBM are all going to be doubling down and declaring themselves to be “best in flash”…they won’t allow Pure to run away with the market.
Evergreen may be a cool program, and its growth may be awesome (off a small base, keep in mind) if actual numbers are provided, but consumption models are not exclusive to Pure (but they are somewhat new in general).

So, yes, Pure does flash well - I agree, which is why I bought some shares.
Flashblade is a new thing - I agree, and stated as much that versions 2.0 or 3.0 are when you can start seeing more adoption (sales) by clients hesitant to buy unproven 1st gen tech. So Flashblade sales will be important to keep an eye on as they can broaden the investment thesis for sure if successful.
Hybrid Cloud/AI - being considered solid for Hybrid Cloud and AI is a positive as those are growing trends. But competition will be fierce for cloud titan dollars and/or cloud titans could do their own thing (think Google TPU for inference vs using NVIDIA in their cloud for inference).

All I will say about Pure for now. I really don’t think there is much else to say until the next couple ERs tell the tale of Flashblade sales, if they break those sales out in the numbers.

Have a great weekend,
Dreamer

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Dreamer Dad, I have been following your post closely and am thankful for the points you make. I don’t know storage like I know networking but I know enough to believe your points are valid.

Sperry (I am really dating myself) had an evergreen model where an application that would compile on one of there models would compile on any later version or size. Nortel had an evergreen model on some of there voice and data gear. Not a new concept or in the case of these two companies not a very successful one.

My point is that when we make important decisions with our money it is useful to get different perspectives, even those that do not match yours. Your perspective is valuable to me.

Regards, Jim

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