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Breaking Analysis: Storage…Continued Softness with Some Bright Spots


>> From the SiliconANGLE Media office in Boston, Massachusetts, it's theCUBE Now here's your host, Dave Vellante

>> Hello everybody and welcome to this week's CUBE Insights, powered by ETR It is Breaking Analysis, but first I'm coming to you from the floor of Cisco Live in Barcelona, and I want to talk about storage Storage continues to be soft but there are some bright spots I've been reporting on this for awhile now and I want to dig in and share with you some of the reasons why, maybe give you some forecasts as to what I think is going to happen in the coming months And of course, we want to look into some of the ETR spending data, and try to parse through that and understand who's winning, who's losing, who's got the momentum, where are the tailwinds and headwinds

So the first thing I want to show you is let's get right into it What this slide is showing here is a storage spending snapshot of net score Now remember, net score in the ETR parlance is an indicator of momentum or spending velocity Essentially every quarter, what ETR does is they go out to, in this case, 1100 respondents out of the 4500 dataset, and they ask them are you spending more or are you spending less Essentially they subtract the less from the more and that constitutes net score

It's not that simple but for this purpose, that's what we're showing Now you can see here on the left hand side, I'm showing all respondents out of 1161 You see the January survey net scores You've got Rubrik, Cohesity, Nutanix, and Pure, and VMware vSAN are the top five So Rubrik and Cohesity, very strong, and interesting, Rubrik was very strong last quarter

Cohesity not as strong but really shooting up It kind of surprised me last quarter, Cohesity being a little low but they were early into the dataset and now they're starting to show what I think is really happening in the marketplace That's a good indicator But you can see 75 percent, 72 percent Nutanix still very strong at 56 percent, driving that hyperconverge piece

You see Pure Storage at 44 percent, down a little bit, talk a little bit more about that in a moment VMware vSAN, Veeam, et cetera, down the list The thing about the left hand side and storage in general, you can see the softness Only about one third of the suppliers are in the green, and that's a problem If you compare this to security, probably three quarters are in the green

It's a much hotter segment Now, look on the right hand side The right hand side is showing what ETR calls GPP, giant, public, and private You can see there's an N of 403 These are the largest, the very largest public and private companies, private company being a company like Mars Candy

And they say that they are the best indicators of spending momentum in the dataset So really isolating on some of the large companies Look what happens here You can see Rubrik gets even stronger as does Cohesity, they're into the 80 percent range That's really rarefied air, so very strong

You can see Nutanix drops down It does better in the smaller companies, it appears They drop down to 41 percent Pure gets stronger in the GPP at 68 percent You can see VMware's vSAN uptick to 45 percent

Nimble gets better, HPE's Nimble, to 54 percent Dell drops down to 48 percent HPE goes up to 33 percent HPE was red in the left hand side

You can see Veeam drops, not surprising, Veeam in the biggest companies is not going to be as prevalent We talked about that in our Breaking Analysis segment after the acquisition of Veeam You can see NetApp bumps up a little bit but it's still kind of in that red zone I also want to call your attention to Actifio They're way down on the bottom in the left hand side, which kind of surprised me

And then I started digging into it because I know Actifio does better in the larger companies In the right hand side, they pop up to 33 percent It's only an N of three, but what I'm seeing in the marketplace is Actifio solving some really hard problems in database and copy data management You're starting to see those results as well But generally speaking, this picture is not great for storage, with the exception of a few players like Rubrik and Cohesity, Pure, Nutanix

And I'm going to get into that a little bit and try to explain what's going on here The market's bifurcated Primary storage has been on the back burner for awhile now, and I've been talking about that The one exception to that is really been Pure Little bit for Dell EMC coming back, we'll dig into that a little bit more but Pure has been the stand-out

They're even moderating lately, I'll talk about that some more Secondary storage is where the market momentum is and you can see that with Rubrik and Cohesity Again, we'll talk about that some more Let me dig into the primary side Cloud, as I've talked about in many Breaking Analysis segments is siphoning off demand from on-prem spend

The second big factor in storage has been there was such an injection of flash into the marketplace, it added headroom Customers used to buy spindles to get performance, and they don't need to do that so much anymore because so much flash was pushed into the system The third thing is you're still seeing in primary the consolidation dynamics play out with hyperconverge So hyperconverge is the software defined bringing together of storage, compute, and networking into a single logical managed unit That is taking share away from traditional primary storage

You're also seeing tactical NAND pricing be problematic for storage suppliers You saw that with Pure again this past quarter NAND pricing comes down, which you'd think would be a good thing from a component standpoint, which it is, but it also lowers prices of the systems So that hurt Pure's revenue Their unit volume was pretty good but you're seeing that sort of put pressure on prices, so ASPs are down, average system prices

Let's turn our attention to the secondary market for a moment Huge injection of venture capital, like a billion dollars, half a billion dollars over the last year, and then another five billion just spent on the acquisition of Veeam A lot of action going on there You're seeing big TAM expansions where companies like Rubrik and Cohesity, who have garnered much of that VC spending, are really expanding the notion of data protection from back-up into data management, into analytics, into security, and things of that nature, so a much bigger emphasis on TAM expansion, of course as I talked about the M and A Let's dig into each of these segments

The chart that I'm showing now really digs into primary storage You can see here the big players, Pure, Dell EMC, HPE, NetApp, and IBM And lookit, there's only company in the green, Pure You can see they're trending down just a little bit from previous quarters but still far and away the company with most spending momentum Again, here I'm showing net score measure of spending velocity back to the January '18 survey

You can see Dell EMC sort of fell and then is slowly coming back up NetApp hanging in there, Dell EMC, HP, and NetApp kind of converging, and you can see IBM IBM announced last quarter about three percent growth I talked about that actually in September I predicted that IBM storage would have growth because they synchronized their DS8000 high-end mainframe announcement to the z15, so you saw a little bit of uptick in IBM

Pure, as I said, 15 percent growth I mean, if you're flat in this market or growing at three percent, you're doing pretty well, you're probably a share gainer We'll see what happens in February when Dell EMC, HPE, and NetApp announce earnings We'll update you at that time So that's what you're seeing now

Same story, Pure outpacing the others, everybody else fighting for share Let's turn our attention now to secondary storage What I'm showing here is net score for the secondary storage players I can't isolate on a drill down for secondary storage, last slide I could do on storage overall, but what I can show is pure plays What's showing here is Rubrik, Cohesity, Veeam, Commvault, and Veritas

Five pure play, you can argue Veritas isn't a pure play, but I consider it a pure play data protection vendor Look at Rubrik and Cohesity really shooting up to the right, 75 percent and 72 percent net scores, respectively You see Veeam hanging in there This is again, all respondents, the full 1100 dataset Commvault announced last quarter it beat earnings but it's not growing

You can see some pressure there, and you can see Veritas under some pressure as well You can see a net score really deep in the red, so that's cause for some concern We'll keep watching that, maybe dig into some of the larger accounts to see how they're doing there But you can see clear standouts with Rubrik and Cohesity I want to look at hyperconverge now

Again, I can't drill into hyperconverge but what I can do is show some of the pure plays So what this slide shows is the net score for some of the pure play hyperconverge vendors led by Nutanix The relative newcomer here is vSAN with VMware You can see Dell EMC, VxRail, and Simplivity I would say this

A lot of the marketing push that you hear out of Dell and out of VMware says Nutanix is in big trouble, they're dying and so forth Our data definitely shows something different The one caution is, you can see Nutanix and larger accounts, not as strong And you can see both vSAN and Dell EMC stronger in those larger accounts Maybe that's kind of their bias and their observation space, but it's something that we've got to watch

But you can see the net scores here Everybody's in the green because overall, this is a strong market Everybody is winning It's taking share as I said from primary We're watching that very closely

Nutanix continues to be strong Watching very carefully that competitive dynamic and the dynamics within those larger companies which are a bellwether Now the big question that I want to ask here is can storage reverse the ten-year trend of the big cloud sucking sound that we have heard for the past decade I've been reporting with data on how cloud generally has hurt that storage spend on-prem So what I'm showing here in this slide is the net score for the cloud spenders

Many hundreds of cloud spenders in the dataset What we're showing here is the net score, the spending velocity over the last 10 years for the leaders You can see Dell EMC, the number one NetApp, right there in terms of market share, IBM as well I didn't show HPE because the slide got too busy but they'd be up there as well

So these are the big spenders, big on-prem players and you can see, well, it's up and down The highs are lower and the lows tend to be lower You can see on the latest surveys, maybe there's some upticks here in some of the companies But generally speaking, the trend has been down That siphoning away of demand from the cloud guys

Can that be reversed, and that's something that we're going to watch, so keeping an eye on that Let me kind of summarize and I'll make some other comments here One of the things we're going to watch here is Dell EMC, NetApp, and HPE earnings announcements in February That's going to be a clear indicator We'll look for what's happening with overall demand, what the growth trajectory looks like, and very importantly, what NAND pricing looks like

As a corollary to that, we're going to be watching elasticity I firmly believe as prices go down, that more storage is going to bought That's always been the case Flash is still only about 20, 25, 30 percent of the market, about 30 percent of the spending, about 20 percent of the terabytes But as prices come down, expect people to buy more

That's always been the case If there's an elasticity of demand, it hasn't shown up in the earning statements, and that's a bit of a concern But we'll keep an eye on that We're also going to watch the cloud siphoning demand from on-prem spend Can the big players and guys like Pure and others, new start-ups maybe, reverse that trend

Multi-cloud, there's an opportunity for these guys Multi-cloud management, TAM expansion into new areas Actually delivering services in the cloud You saw Pure announce block storage in the cloud So that's kind of interesting that we'll watch

Other players may be getting into the data protection space, but as it relates to the cloud, one of the things I'm watching very closely is the TAM expansion of the cloud players What do I mean by that Late last year, Amazon announced a broader set of products or services really in its portfolio Let's watch for Amazon's moves and other big cloud players into the storage space I fully expect they're going to want to get a bigger piece of that pie

Remember, much if not most of Amazon's revenue comes from compute They really haven't awakened to the great storage opportunity that's out there Why is that important You saw this play out on-prem Servers became a really tough market

Intel made all the money Amazon is a huge customer of Intel, and Intel's getting a big piece of Amazon's EC2 business That's why you see, in part, Amazon getting into its own chip design I mean, in the server business, you're talking about low gross margin business If you're in the 20s or low 30s, you're thrilled

Pure last quarter had 70 plus percent gross margins It's been a 60 plus percent gross margin business consistently You're going to see the cloud guys wake up to that and try to grab even more share It's going to be interesting to see how the traditional on-prem vendors respond to that Coming into last decade, you saw tons of start-ups but only two companies really reached escape velocity: Nutanix and Pure

At the beginning of the century, you saw Data Domain, Isilon, Compellent, 3PAR all went public EqualLogic and LeftHand got taken out There are a bunch of other companies that got acquired Storage was really a great market Coming into this decade, mid part of the decade, you had lots of VC opportunity here

You had Fusion and Violin, Intentury went public They all flamed out You had a big acquisition with SolidFire, almost a billion dollars, but really Pure and Nutanix were the only ones to make it, so the question is, are you going to see anyone reach escape velocity in the next decade, and where's that going to come from The likely players today would be Cohesity and Rubrik Those unicorns would be the opportunity

You could argue Veeam, I guess reached it, but hard to tell because Veeam's a private company By escape velocity, we're talking large companies who go public, have a big exit in the public market and become transparent so we really know what's going on there Will it come from a cloud or a cloud native play We'll see Are there others that might emerge, like a Nebulon or a Clumio

A company like Infinidat's doing well, will they hit escape velocity and do an IPO and again, become more transparent That's again something that we're watching, but you're clearly seeing moves up the stack where there's a lot more emphasis in spending on cloud, cloud native We clearly saw it with hyperconverge consolidation but up the stack towards the apps, really driving digital transformations People want to spend less on heavy lifting like storage They're always going to need storage

But is it going to be the same type of market it has been for the last 30 or 40 years, of great investment opportunities We're starting to see that wane but we'll keep track of it Thank you for watching this Breaking Analysis, this is CUBE Insights powered by ETR This is Dave Vellante We'll see you next time

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