Flash is one of the hottest, fastest growing enterprise technology markets in computing history. While it just entered the mainstream in 2014, analysts are now predicting it to be well over a $1 billion market this year with sustained growth rates in excess of 50 percent per year for the foreseeable future.
And along the way, there have been many dynamic moments — as to be expected when such a disruptive technology gets invented and every incumbent vendor grabs for market share. Should you be listening to all the buzz? Should you be looking to deploy this new technology? The answer is yes, but only with the clarity of hindsight.
In the Beginning…
Venture capitalists began investing in flash storage companies in 2007. By 2013, over $2 billion had been invested in more than 40 of them.
Perhaps the first notable startup in the flash space was Fusion-io. In fact, as we were working with our early alpha and beta customers we often found Fusion-io was there too. Fusion-io grew rapidly for a couple of years and executed a high valuation IPO in 2011, pricing shares at $19. The company raised $233 million dollars (on top of more than $100 million of early-stage venture capital) at a valuation of $1.5 billion. At one point, the stock rose to a $4 billion valuation.
However, the good times didn’t last, as Forbes reported:
“Fusion-IO is another company that has seen the venture capitalists cash out and stock investors get creamed. It went public in 2011 at a sky high multiple of 41 times the previous year’s sales, valuing the company at $1.48 billion. Fusion IO raised $233 million in the IPO by selling shares for $19 each and the shares jumped to as high as $39.60 in its first five months as a public company. Since then the shares have crashed. Fusion-IO’s stock has plunged by 37% in 2013 and is now trading for 25% less than its IPO price.”
From mid 2012 until 2014 its shares continued to slide and SanDisk acquired it in July 2014 for $11.25 per share, for a total valuation of $1.1 billion.
Fusion-io’s stock price from IPO until Sandisk acquired the company
The Flash Arrays Cometh
The next flash contender was Violin Memory. Whereas Fusion-io built PCIe cards installed into servers, Violin Memory was a pioneer in the concept of a flash array, the hottest part of the market today. Violin gained significant prominence in 2012. In an interview with Silicon Angle at EMC World that year, Violin’s CEO Don Basile stated (just as EMC was completing the acquisition of XtremIO):
“One of our partners, ICI, has us in one of the booths here, showing a great VDI solution using Violin….they’re a long-time EMC distributor and need some flash to go ahead and make those VDIs run and are demonstrating Violin in the booth.”
When asked about Violin Memory going public, Basile replied, “I think the public market has shown, and hats off to the Fusion[-io] management team today in that they’ve basically been able to derive a multi-billion dollar valuation in the public market – able to access capital. And I think that we’re being asked to do the same thing. Our customers, our partners are saying ‘go public, raise another few hundred million dollars of capital, grow Violin even faster to go ahead to take advantage of the opportunity’. Cisco did it in its day, Google did it in its day, Netscape did it in its day. It seems like the right thing to do for our customers, our employees, and our shareholders.”
Violin raised $250 million in venture capital, with its last round before its 2013 IPO valuing the company at $800 million. At one point, the company was ranked #1 in flash array sales by IDC, with revenue of $74 million, but with losses for the same period of $109 million.
While Violin reaped $162 million during its IPO, its stock dropped 22 percent the first day of trading, leaving the valuation under $600 million — less than the $2 billion valuation Violin widely publicized it would get. The stock has continued to drop since then, recently trading at a valuation under $450 million.
Violin Memory’s stock price from IPO until today
Pure Storage’s Entry
Pure Storage was founded about the same time as XtremIO, and with a similar idea to deliver a high value, data services rich, purpose-built all-flash array. To date, Pure Storage has raised nearly $500 million of venture capital at a $3 billion post-money valuation. Similar to Violin, Pure gained early market traction, achieving solid market share rankings back in in 2013 from both IDC and Gartner.
Pure Storage is rumored to have an IPO in 2015. Your guess is as good as mine as to how it will play out. As we saw with the Hortonworks’ IPO filing last month, sometimes valuations that private investors are willing to give in earlier investment rounds do not reflect what public offering underwriters like Goldman Sachs are willing to support. Just as we never knew the real revenues and cash burn rate of Hortonworks, we won’t know much about Pure until it files its S-1.
The XtremIO Factor
I’ve written about how far XtremIO has come in shaping the landscape of flash arrays. Compared to the lofty capital raises and valuations of other flash storage companies, XtremIO had a much more sober history. EMC didn’t disclose the purchase price for XtremIO, but it was widely reported as $430 million, right about where Violin Memory’s valuation is today.
XtremIO’s acquisition almost three years ago really wasn’t about the valuation (although at the time it was big news). While the other flash companies have fallen to more reasonable levels, it turns out that the steadiest player, in terms of product innovation, company growth and customer service, is XtremIO. We were acquired at the perfect time, at a non-disruptive price and plugged into the greatest storage company in the world — by an integration team that knew what it was doing. It took some time to prove out that this was the best way to go, but now we have. The benefit to our customers and prospects is the best of all worlds: we never skipped a beat, we have outperformed all other flash storage companies and our plan is to continue our leadership path.
The magic of XtremIO is in the core technology and what we enable customers to do in their data centers, not in the valuation hype. We’re as interested as ever to see if the latest flash startups can achieve and maintain their lofty valuations. It’s a fun spectator sport, but that’s not what sets a company apart and it’s not anything you should pay attention to as a technology buyer. You’re investing in your data center, not in the stock market.