EMC storage revs down, reflect industry transformation

EMC came up $75 million short of its projected storage revenue last quarter, according to its Wednesday earnings report.

No big surprise there. EMC and other large storage vendors have struggled to increase revenue and hit their forecasts over the past year or so. And as always is the case whenever that happens, EMC executives gave reasons for the failure. They pointed to customers waiting for the new Data Domain backup system, internal problems caused by recent layoffs, and geopolitics in Russia and China that dampened sales.

There is another reason, though, that has nothing to do with EMC’s products or sales force, or geopolitics. There is a fundamental shift in the type of storage people are buying that has a negative effect on legacy storage vendors. So while EMC, NetApp, IBM, Hewlett-Packard and Hitachi Data Systems have struggled to grow revenues, smaller vendors such as Nutanix, Nimble Storage, Pure Storage and Tintri have picked up the slack with the types of storage systems that didn’t exist five years ago.

This trend is not lost on EMC, which has moved faster than other large vendors to adjust to the changes. It has acquired or developed all-flash, hyper-converged, cloud, and big data systems that are replacing its legacy arrays in deals. A drill-down on its sales last quarter shows how that transformation is playing out.

EMC’s high-end storage – its flagship VMAX platform – fell seven percent year-over-year to $871 million. That follows at 13 percent year-over-year drop in the previous quarter.

Backup and recovery products – a large growth area for years after EMC’s 2009 acquisition of Data Domain – dropped 11 percent to $1.3 billion last quarter. But other storage platforms — including Xtremio, Isilon scale-out NAS, ScaleIO converged infrastructure, ViPR software-defined storage and Elastic Cloud Storage — combined to grow more than 15 percent to $1.5 billion to help pick up the slack. Overall, EMC’s storage revenue of $3.7 billion for the quarter was down less than 1 percent from last year.

“We were disappointed that we a bit short of our revenue plan,” EMC federation CEO Joe Tucci said of the quarter.

We’re seeing the newer technologies replacing the old in many cases. David Goulden, CEO of EMC’s Information Infrastructure (storage) group, said revenue from XtremIO all-flash storage more than doubled from a year ago. Goulden said XtremIO is on track for more than $1 billion in bookings in 2015. About one-third of its revenue comes from replacing workloads that customers previously ran on other EMC storage, with another third from previous EMC customers running new workloads and the other third from customers new to EMC.

Goulden blamed EMC’s drastic backup revenue drop on customers waiting for the new high-end Data Domain disk backup system, which will launch during EMC World next month. That should help but there is a good chance EMC’s heady backup growth is over. EMC already offers customers a way to back up directly to arrays with its ProtectPoint software, and it may bring out a virtual appliance version of Data Domain that will sell for less money than the large disk appliances. These are more examples of how new technologies are changing the way people buy storage.

“There is a huge inextricable linked business and IT transformation taking place right now,” Tucci said.

The challenge for EMC and other large storage vendors is to keep up with that change. Tucci and Goulden pointed to new other product launches coming at EMC World including XtremIO enhancements, software defined storage, converged infrastructure, and data lake solutions involving EMC storage and its Pivotal cloud and analytics division. The vendor will also fill in some of the blanks around its DSSD in-memory flash storage, expected to ship in late 2015. Unlike the Data Domain backup target, none of these are traditional storage products.