Legacy storage vendors aren't spending enough on R&D and are just selling rebranded products manufactured by third parties.
That's the message from Pure Storage CEO Charles Giancarlo, who spoke to members of the press during a Q&A session at the vendor's annual Accelerate conference in Austin, Texas.
Giancarlo said that Pure Storage's closest competitors - "legacy" players such as IBM, HPE and Dell - are just "milking" the market and doing their customers a disservice by not dedicating enough of their revenues to R&D. He even went as far to claim they're just launching old products under different branding.
Pure Storage spent 18 per cent on its revenues on R&D in its last financial year, claims Giancarlo, compared to its competitors which he claims typically spend around four or five per cent.
The CEO said it would be "very hard" for the likes of Dell and HPE, who have dominant storage market shares, to move away from a low R&D spend model.
"The trouble is, in my view, most of the vendors have not been investing in that market. They've been doing what's called "reaping" or "milking" the market by not investing in R&D, but continuing to get revenue and gross margin out of that market.
"And I think it has held storage back in terms of innovation and performance and I think it's held it back in terms of overall growth," he said.
Giancarlo pointed to Pure Storage's launch of its Flash Array C product during its Accelerate conference in Austin, an "industry first" which Pure claims will replace disk arrays for less mission critical workloads.
Pure Storage claims that it is still taking market share from the industry's largest players. Giancarlo said that the company is growing at a rate of 40 to 50 per cent each year, outpacing the storage market as a whole which has been hitting five to 10 per cent growth each year.
The storage market contracted in Q2 this year - by one per cent, according to IDC, but Pure Storage grew its revenues by 28 per cent year on year. The storage vendor outgrew its competitors in Q2 - Dell's storage revenues were flat in its corresponding second quarter amid a seven per cent slump in its infrastructure business. HPE's storage sales meanwhile grew by three per cent in its second fiscal quarter.
But Pure Storage is still only ranked number four by market share in most EMEA markets, while IDC placed it fifth in the global enterprise market in the first quarter of 2019.
Giancarlo, however, was bullish that Pure Storage will continue to take share, claiming its larger competitors are just selling into an existing install base instead of winning new logos.
He said Pure Storage's sales teams are "hunters" that acquire new business while its competitors' sales forces are "farmers" that passively sell to a large customer base.
"Given that we had no install base that was not a possibility for us. So our sales force is largely made up of hunters. And so they continue to be aggressive in going after the footprints of our competitors in that environment. So even in a stable market that's not growing, we continue to grow because of that," said Giancarlo.
However, despite growing its revenues and market share, after 10 years in business, Pure Storage is still not turning a profit.
The firm has spent $162.52m on R&D during the first six months of its fiscal year until 31 July 2019 and $266.116m on sales and marketing, dragging the firm to a $117.08m loss from operations and a $124.43m net loss.
When questioned about Pure Storage's bottom line performance, Giancarlo said Pure Storage is actually turning a profit on a non-GAAP basis, adding that his company will continue to aggressively pursue market share gains.
"We are cash flow positive and have been positive for some time," he said. "Last year we were profitable on a non-GAAP full-year basis. This year, we're projecting and the analysts are projecting profitability for the full year, non-GAAP."
"As we go forward, are we just going to continue to be share takers? Well, the answer to that question is yes," he added.
The CEO went on to argue that selling storage is the most profitable part of the datacentre today. The server market is on a downward trajectory and recently hit its first quarter of decline in more than two years.
Giancarlo said legacy vendors aren't making any money from selling servers, referring to it as a "very small profit pool". Networking, he claims, actually has high gross margins, at around 65 per cent, but only accounts for just 10 to 15 per cent of total spend on the datacentre.
Storage is the second highest spend in the datacentre after servers, and companies typically make gross margins in the high 40s, claims Giancarlo, while Pure Storage is hitting gross margins of around 70 per cent.
Giancarlo was also quizzed on whether Pure has any plans to enter the hyperconverged market and add a compute layer to its current portfolio. One of Pure Storage's closest competitors, HPE, staked a claim on the hyperconverged space through acquiring SimpliVity in 2017, while firms such as Nutanix have also risen to prominence.
But the CEO shot down any notions that Pure Storage will diversify its portfolio to areas such as backup or compute solutions. The storage vendor currently relies on a partnership with Cisco, called FlashStack, to answer demand for converged infrastructure.
"We will not be offering compute," said Giancarlo. "We think there are a lot of compute vendors out there that do a great job. What we will do is increasingly integrate the storage layer into the virtualisation layer. Two early examples of this are VM analytics and our Pure Service Orchestrator, which do a good job of integrating storage into both of those worlds."
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