EMC: 'Shocking' Pure Storage exaggerated growth

EMC predicts Pure Storage's generous channel model will soon be a thing of the past

EMC has accused Pure Storage of "exaggerating its growth" and said its "staggering losses" will likely soon put an end to its generous sales and channel incentives.

Pure Storage put the wheels in motion for an IPO last week with a filing to the US Securities and Exchange Commission (SEC). The document revealed the company's financial results for the past three years, and although sales have soared, losses have widened as a similar rate. In the full year ending 31 January this year, Pure made a loss of $183.2m (£117.2m) on sales of $174.5m.

EMC has faced stiff competition from Pure Storage since the latter launched in the channel two years ago.

Speaking to CRN, EMC's vice president for marketing and product management in its flash unit XtremIO, Josh Goldstein, said the IPO filing reveals the truth about its rival.

"We were expecting that they would be filing for their IPO soon and now that there is financial transparency in their reporting, it's rather shocking to see, I think, how much they have exaggerated their growth," he said.

"You can see pretty staggering losses in there as well. I would be surprised if anybody was expecting it to be at that level for the losses. When you're losing more than a dollar for every dollar you sell, that's a pretty extreme way to grow a company, I guess.

"What's interesting is they say in several places in the risk factors [section] of the filing that they have no plans to change this operating model any time soon. So I think that's something investors would be wise to think about."

He said Pure's cash burn should send a stark warning to the channel, customers and would-be investors.

"If I were a customer and I have a vendor telling me there's an expected 10-year lifetime on an array but there's potentially an expected two-year lifetime on the company [that's selling that array's] cash burn, I'd be really worried," he said.

EMC reported strong results for its XtremIO business when it announced its Q2 results last month. For the three months to 30 June, XtremIO sales rocketed 300 per cent annually, helping the company post a small boost in sales over the same period.

"Already people are convinced it is better to work with us from a technology standpoint," Goldstein said. "People have been voting with their wallets in favour of XtremIO and now we know that margin is bigger than we originally thought."

Pure Storage is well known in the industry for its generous sales and channel incentives, but Goldstein said the IPO filing proves this cannot go on forever.

"If they have a successful offering, they will reload their cash and they can continue to operate as they have for a while," he said. "But at some point, [the] day of reckoning is going to come. It is going to affect everybody – if you look at their sales compensation rate, it is astronomically high. It is easy to get people to sell and carry a product in the channel when you pay them at the level Pure is paying them. But when they have to get real and they can't do that anymore, it will absolutely have a negative effect.

"What I see differently [since the IPO was filed for] is how much runway they have to do what they're doing. It is probably shorter than we thought before, but, of course, I still treat every competitor seriously."

Pure Storage was not immediately available to comment.