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.