A few weeks ago Nimble Storage CEO Suresh Vasudevan flagged EMC’s aggressive sales tactics as a key problem for Nimble’s enterprise penetration. We can now put a number on how much this is costing EMC.
For the full year, EMC’s Information Storage group product revenues dropped from $10.785B in 2014 to $10.2B – an almost $600M drop. Gross margins – including services – also fell from 55.5% to 52.3% – over 300 basis points.
In response, EMC has stuck it to their loyal customers by tightening the screws on service revenue: up almost $450M, despite declining product sales. EMC’s traditionally rich services pricing is getting richer.
As a result, total IS gross profit dropped from $9.18B to $8.52B. But the impact of competition is greater than that indicates, because the services revenue and profit is bundled into that gross profit number. If we assume that services profit margins have remained constant – and there is no reason why they wouldn’t – we get closer to the truth of the battle. I estimate that EMC’s lost gross profit is the order of $650M – just from reduced margins – plus another $400 or so from lost business.
The StorageMojo take
Nimble can’t take all the credit for EMC’s Information Storage results. There’s AWS, Google, HDS, Nutanix, Pure, Violin, Scality, and others. But with their direct charge into EMC’s enterprise market, they and Pure have put EMC on a very costly defensive.
Given Nimble’s $300M current annual run rate, and Pure’s $450M annual run rate, EMC is lost more than a dollar in Gross Profit for every dollar in revenue these two upstarts are earning. In the coming quarters I expect EMC IS revenues to shrink even faster than they have been, and the cost of winning sales to grow even more.
Will EMC’s emerging storage products like XtremIO and DSSD be able to grow fast enough to take up the slack? Stay tuned.
Courteous comments welcome, of course. I’ve recently done work for Violin.
I am a 30 year veteran of the IT industry. The impact that the start-ups, cloud, new technology is having on the industry is greater than it ever has been. Maybe Pure and Nimble should merge?
What about NetApp. Aren’t #2 overall ?
With all the infighting at EMC , NetApp must look like a pretty place to work.
Re: the last comment.
There’s infighting at Netapp too. Not sure if the poster was being sarcastic but with EMC, at least they have a wide product portfolio. For Netapp, it’s just the NAS market, which is declining.
Netapp just cancelled their Mars project, the one they bet the farm on. While EMC is declining, Netapp is declining even more. Both companies will have layoffs within the next 3 months.
If you get to keep your job @netapp…
http://fortune.com/2016/02/17/netapp-lay-off-workforce/
With EMC’s enterprise cloud and huge capital backing, they can afford to bleed for a while. Startups (especially the ones which have gone IPO) cannot have a similar approach else they would become like Violin Memory. Having said that, I see a lot of opportunity for the consolidation happening among the small storage vendors, few closing down, eventually going to be gobbled by the remaining few big enterprise storage folks. They have lot more to lose to let the smaller storage company to succeed.
EMC better to watch burn rate of their pile of cash too. It is only going to get worse for them.
Bleeding a Billion dollars per year? You will quickly see what investors will do out of their stocks once they find out exactly the extent of the hole – all that even before the Dell acquisition is completed.
What, start ups cannot afford to bleed for awhile? Heck, that’s their business model; look it up! Hey, it’s fun to see the disruption in the storage industry; competition is good for the users. I’ve had the pleasure of working at some of the big guys AND some of the small guys and what I was was … innovation happens at the small guys and they eventually get gobbled up. The only question is, will the gobbler ruin the gobbled (I won’t name names, it’s too easy) or will they truly leverage the innovation, such as HP did with 3PAR?