Pure Storage revenues grew in its second fiscal 2025 quarter, with hyperscalers and AI showing promise for the future.
Revenues in the quarter were $763.8 million, up 11 percent on a year ago and beating its $755 million guidance. Profit was $35.7 million, much better than $7 million loss last year. Pure said its discussions with hyperscalers to replace their core (disk) storage with Pure’s all-flash technology “continue to progress positively.”
Chairman and CEO Charles Giancarlo stated: “We were pleased with our Q2 revenue growth of 11 percent year-over-year. Pure continues to pick up market share, and outpace the industry, both in innovation and in growth.”
Quarterly financial summary:
- Gross margin: 70.7 percent, flat year-on-year
- Free cash flow: $166.6 million vs $46.5 million a year ago
- Operating cash flow: $226.6 million vs $101.6 million a year ago
- Total cash, cash equivalents, and marketable securities: $1.82 billion vs $1.2 billion a year ago
- Remaining Performance Obligations: $2.34 billion, up 24 percent year-on-year
Pure’s revenue was made up of $361 million subscription services and $403 million product sales, with the year-ago numbers being $289 million and $400 million respectively. Subscription services are growing faster, at 25 percent, compared to product revenues, which had a 0.71 percent growth rate.
Pure noted strong FlashArray//E and FlashBlade//E capacity-optimized array sales performance. The FlashArray//C did well too.
There was 24 percent year-on-year growth in Pure’s Annual Recurring Revenue (ARR), driven by its EverGreen//One service offering. However, large EverGreen//One deals, those in excess of $5 million, took longer to close.
Pure gained some 261 new customers in the quarter, including two from the Fortune 500, taking its total customer count past 13,000.
Hyperscalers
It is continuing discussions with prospective hyperscaler customers. Giancarlo said: “Our lead prospect has advanced from extensive evaluation of our core technology to testing an integrated solution, and we have been engaged in detailed contractual negotiations for many months. We remain confident that we will secure our first hyperscaler design win by year end.”
CFO Kevan Krysler added: “Our most significant capital expenditures during the quarter were concentrated in engineering for new test equipment supporting key strategic growth initiatives, including our pursuit of hyperscaler infrastructure opportunities.”
CTO Rob Lee said: ”What we’ve done over the last many months is really move forward on our testing in phases from initial proof of concept to testing of that core IP to now extensive testing of really an integrated, think of it as a co-engineered solution. And as you’d imagine, this involves detailed performance, operational testing, so on and so forth.”
Giancarlo sees high potential with hyperscalers. ”The longer-term opportunity for Pure with hyperscalers is significant,” he said. “To provide a sense of scale, the top ten hyperscalers are projected to buy almost 70 percent of all disk drives, over 600 exabytes in total, this year alone. Because of Pure’s unique Direct to Flash technology, we can offer hyperscalers better performance, reliability, and power and space savings than hard disks, at a similar or better total cost of ownership.”
Krysler spoke in more detail about the hyperscaler opportunity for Pure’s Direct Flash Module (DFM) technology. ”They’re looking to make it an architectural shift in their infrastructure, whereby it would replace not only higher-performance workloads but lower-performance workloads, including disk, and once implemented, there’s no reason for it not to replace, for example, even their use of SSDs.”
Lee noted: “We think, in the long term, we’ve got opportunity to go provide value across the board with our Direct-to-Flash technology. But certainly, as an initial step, we’d be focusing on the replacement of the disk-based environments in that infrastructure.”
AI
Turning to AI, Giancarlo said: ”The AI market for data storage has progressed as we have consistently predicted,” with three identified opportunities. “First, storage for machine learning and training environments where Pure provides high-performance storage for public and private GPU farms.
“Our view is that in total, the total market for storage for large language type models – training models – is less than $1 billion a year currently.
”The second AI opportunity we foresee focuses on tailored storage for enterprise inference or RAG [retrieval-augmented generation] environments. Many, if not most, enterprises will use commercial LLMs or other models to operate on their own proprietary data in-house. These systems will use relatively small GPU environments to provide AI insight from their data. Pure is working closely with Nvidia on a number of vertical market offerings to satisfy this market.
“We continue to believe that our largest opportunity opened by AI is to address the siloed nature of enterprises’ existing data storage architectures. Current data stores sit behind application stacks and generally have neither the performance nor the connectivity to serve data directly for AI engines and analytics. Customers that are the most advanced in their AI investigations all acknowledge that data access and preparation are major barriers to AI deployment.
“Pure Fusion will allow customers to upgrade their enterprise storage to function as a storage cloud, simplifying data access and management, and eliminating data silos to enable easier access for AI.”
The Fusion offering unifies arrays and optimizes storage pools on the fly across structured and unstructured data, on-premises, and in the cloud. It also automates orchestration and workload placement.
CTO Lee said: “With our latest release of Fusion coming later this year, we’ll be able to deliver all of those capabilities that Fusion was designed for, being able to fully automate the management multiple environments, allow customers to manage their Pure Storage estate through policy declaration as opposed to individual operational steps and really step back and unify that as one pool of resources, one storage cloud, if you will. Later this year, customers will be able to take advantage of all these capabilities on all of their existing arrays and data storage estates.”
Giancarlo highlighted Pure’s electricity savings: “In a world where energy demands are soaring, the power savings of Pure Storage alone make the move from hard disks to Pure technology a smart choice for both hyperscaler and enterprise data centers. Businesses can grow their data storage and reduce their energy footprint with Pure on a platform that eliminates existing data silos and simplifies customers’ data centers with guaranteed service-level agreements.”
He added: “Energy and space savings generated by our Direct-to-Flash advantage are significant – we reduce space, power, and cooling requirements by a factor of 5 to 10 compared to hard disks. In a world of greater power demands and limited electrical supply, the savings on electricity alone provides a compelling incentive to switch from hard disks in both hyperscaler as well as enterprise data centers.”
William Blair analyst Jason Ader noted: “Investors remain on pins-and-needles with respect to a major hyperscaler win.”
If Pure does succeed in selling its flash storage to hyperscalers, perhaps it will start repeating its flash-will-replace-disk-drives message about which we have heard little recently.
Giancarlo is confident about Pure’s competitive strength. He told analysts: “We know we are gaining ground as our growing strength has forced competitors to intensify their efforts and mimic our messaging. It is clear now that legacy competitors in our market see Pure as the alpha competitor and have focused their messaging and strategies on us. We appreciate the attention and look forward to the competition.”
Krysler said: “We’re now the number two vendor of all-flash systems into the enterprise [and] firmly in that spot and only a few points behind the number one in that area … Competition is tough, but our lead in QLC remains.” Number one would be Dell.
The outlook for the third fiscal 2025 quarter is revenues of $815 million, up 6.8 percent year-on-year, with the full-year outlook unchanged at $3.1 billion, representing a 10.5 percent year-on-year growth rate. Giancarlo commented: “We believe that the storage market will be resilient in this IT economy, but we have yet to see a positive inflection.”
Wedbush analyst Matt Bryson commented: “Pure Storage ostensibly outperformed their prior outlook and guided Q3 above prior consensus revenue estimates, but the growth forecast wasn’t good enough in light of elevated expectations, particularly given other less-than-perfect metrics. We’d note that Pure Storage’s results contrast significantly with storage peer NetApp, which noted accelerating sales momentum and significantly stronger product growth for its July quarter.”
