Last week Nimble Storage announced their Q1 2016 results. These show continued growth (both in customers and revenue) but also highlighted an equivalent increase in quarter on quarter losses, with break even predicted for 2017, four years after the company floated on the New York Stock Exchange. The lack of profits highlights a major issue for the storage startups – should they push through to IPO or seek to be acquired?
From an IPO perspective, Nimble, Fusion-io and Violin Memory have all had a rough time of it; Fusion-io was acquired by SanDisk; Violin Memory shares are currently trading at $3.30, valuing the company at a mere $316m and a third of the $9 IPO price. Nimble have been slightly more successful, floating at $21/share and currently trading at $25.93. Heading down the IPO route requires funds to continually grow out the sales force and acquire new customers, while at the same time developing new products to bring to market. Creating that first product is great but the storage market is fast moving and within 2-3 years any storage platform will start to look outdated without continual improvement and development.
So what about acquisition? Likely acquirers are companies that can afford to spend upwards of $1 billion (or more) and more importantly have a need for a new storage platform, feature or functionality in their product set. HP needed a product to replace EVA (so they acquired 3PAR), EMC needed an all-flash platform (so they acquired XtremIO), NetApp has made multiple acquisitions over the years (including Spinnaker Networks, Engenio and StorageGRID), IBM acquired TMS, XIV and StoreWize, Dell acquired Equallogic and Compellent.
Despite having what looks like a mature market, we still have plenty of new storage startups, including Tintri, Tegile, Coho Data, Kaminario, Infinidat, X-IO, Nexgen, Pure Storage, SolidFire, Memblaze, Data Gravity, Primary Data, Exablox and Nasuni and that’s without even mentioning the software-only solutions. Where will these companies end up? The likes of Pure Storage are definitely headed for IPO and have raised massive amounts of money to fund globalisation. In the last few weeks, Infinidat, Coho Data, Tegile and Exablox have made additional funding announcements ($100m for Coho and Tegile alone), so there’s no shortage of money out there in the short term. However VCs will want their money back at some stage, either through acquisition or IPO. Alternatively the money dries up and a distressed sale sees assets head over to companies like Oracle.
This week’s announcements from HP (new 3PAR StoreServ 20000 series) and Pure Storage (new FlashArray//m) mean the pressure is on to be competitive and find a niche. Many startups are focused on price or unique features. Cost is unlikely to be a winner in the long term, however having a unique USP may increase the chances of being picked up by one of the big boys. Whether the market looks crowded or not, there seems to be no let up in new storage companies coming to market. There are are certainly interesting times ahead.
The relative success of these companies is part of ongoing Langton Blue research and analysis that will produce additional premium reports in the coming months.