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Pure Storage's impressive sales growth diluted by losses

Pure Storage is finding that it’s expensive to grow sales in the all-flash storage market these days.

While Pure increased revenue last quarter by 89% year-over-year, it was unable to reduce its losses. Pure reported $139.9 million in sales, which was better than analysts expected and impressive growth in the current storage market. Still, the all-flash vendor lost $40.8 million, the second largest quarterly loss in its history.

For now, Pure is focusing on expanding sales and the launch of its second all-flash platform, the FlashBlade for unstructured data. The spike in sales from Pure’s FlashArray SAN system last quarter prompted Pure CEO Scott Dietzen to declare victory despite the income drop.

“A $600 million revenue run rate, and being able to grow the business at 89%, I would say is unprecedented in storage industry history,” Dietzen said Wednesday on Pure’s earnings call. “We’re playing now as one of the top 10 storage providers in the world. And we are profoundly differentiated and distancing ourselves from the rest of the pack in terms of the market we are serving and growth.”

“We have aspirations to be number one in a $24 billion [all-flash] market. But we are supremely happy with the quarter we just turned in and we are on track to hit all of our targets.”

Although overall storage sales are declining throughout the industry, all-flash systems are picking up. Pure faces tough competition now from larger and smaller vendors.

EMC claims its XtremIO all-flash platform alone generated more than $1 billion in revenue last year and expects to approach $2 billion this year. Hewlett Packard Enterprise this week reported its 3PAR StorServ all-flash sales last quarter nearly doubled from last year, and HPE CEO Meg Whitman claimed all-flash revenue was higher than Pure’s. NetApp CEO George Kurian said his company is on pace for about $700 million in all-flash revenue over the next year and Nimble Storage said it added 55 all-flash customers in the first six weeks of selling its new platform.

The competition is prompting Pure to accelerate spending. Its sales and marketing expenses were $75.6 million last quarter, compared to $44.9 million a year ago. That led to a loss of $40.8 million last quarter last quarter, slightly more than the $40.2 million loss than a year ago and significantly more than the $22.3 million loss in the fourth quarter of 2016 when sales and marketing spending was $62.5 million.

Dietzen said Pure added nearly 300 customers in the quarter, bringing its total to more than 1,950. New customers included the World Bank, Bank of New York Mellon, Softbank and the University of Melbourne. He said cloud companies make up about one-quarter of Pure’s business, mainly service-as-a-software providers using FlashArray as their storage platform.

Pure has $607 million in cash to cover losses for a while but the vendor will eventually need to make money. CFO Tim Riitters said this year will mark “the turning point in terms of absolute losses.” By that, he doesn’t mean the losses will stop, but they will not accelerate over last year. That would require Pure to keep losses below $143.6 million for the full year, which is hardly approaching profitability.

FlashBlade may help. Dietzen said FlashBlade has dozens of beta customers, with direct availability to selected customers planned for the third quarter this year. The goal is to make FlashBlade generally available by the end of the year.

“We think the product can grow even faster than FlashArray did,” Dietzen said.