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The past few months have forced the normally conservative data storage world to make on-the-spot adjustments to the ways people buy and use storage.
Recent earnings reports from leading storage companies provided a look at how they adapted to the changes. While they experienced mixed results, clear buying patterns and industry changes emerged in the data storage market. Storage leaders expect many of the changes will remain in place, even after the COVID-19 threat subsides.
The recent earnings calls showed some trends accelerated -- such as a move from large data center arrays to hyper-converged infrastructure (HCI) and the cloud, and a shift from Capex to Opex spending. It also forced new selling strategies as face-to-face sales calls and conferences gave way to virtual events and virtual meetings between buyers and sellers working remotely.
One major storage CEO even experienced COVID-19 personally.
"I contracted COVID-19 in mid-March," Pure Storage CEO Charlie Giancarlo said last week on the company's earnings call. "And that experience has provided me with a deep personal appreciation for this virus and its impact. The changes in people's lives and livelihoods are truly extraordinary. And our expectations of what is or will be normal are forever changed. Every day, each new report on the crisis brings an uneasy mixture of anxiety, uncertainty and hope about the future."
Storage vendors confronted this new normal over the last few months, with their business prospects also filled with uncertainty. Pure came out of it better than its larger direct competitors Dell EMC, NetApp and Hewlett Packard Enterprise. Still, it joined Dell and HPE in declining to give a forecast for this quarter because of uncertainty. NetApp did not give a long-term forecast but predicts a 6% revenue drop this quarter.
The following are some ways the data storage market changed during the first quarter of COVID-19:
Arrays give way to cloud, HCI
Flash array vendor Pure's revenues increased 12% over last year, to $367 million. Other array vendors didn't fare so well, while HCI and services revenue grew as organizations shifted to remote work and bought storage remotely.
Dell EMC's storage revenue fell 5% to $3.8 billion, while its Infrastructure Solutions Group fell 8% overall (servers and networking dropped 10%). But while storage, servers and networking dipped, Dell reported double-digit growth in its VxRail HCI platform that combines those IT infrastructure tiers.
NetApp revenue dropped 12% to $1.4 billion, including a 21% decline in product revenue. NetApp all-flash array revenue of $656 million dropped 3% since last year, while cloud data services of $111 million more than doubled. NetApp claims it has more than 3,500 cloud data services customers.
"I would tell you that as we think about the go-forward strategic roadmap, it's much more tied to software and cloud services," NetApp CEO George Kurian said.
HPE storage revenues declined 16% since last year.
Hyper-converged infrastructure specialist Nutanix reported an 11% revenue increase to $318.3 million. Dell-owned VMware also reported revenue from its vSAN HCI software increased more than 20%, as did its NSX software-defined networking product.
It's no surprise that the VDI expansion would lead to HCI sales, because VDI was among the first common use cases for hyper-convergence. One change since the early days of HCI is that now many of those desktops are sold as a cloud service.
Nutanix CEO Dheeraj Pandey said the increase for VDI and desktop as a service (DaaS) in March and April "brought us back to our roots, when a much larger piece of our business supported virtual desktop workloads."
VDI also helped flash storage catch on, as a way to deal with boot storms and peak periods required for heavy volume of virtual desktops. Not all flash vendors benefited last quarter, but Pure did.
"Certainly, VDI was one of the major use cases out there," Pure's Giancarlo said.
In May, NetApp acquired VDI and DaaS startup CloudJumper to address that market.
Who's buying? And how?
COVID-19's impact on storage buying was far from uniform. The pandemic left some industries financially devastated, while others had to expand to keep up.
Dell COO Jeff Clarke said Dell saw demand drop among SMBs and industries such as retail, manufacturing, energy and transportation. But financial services, government, healthcare and life sciences increased spending.
Kurian said NetApp also saw an increase in healthcare spending, driven by the pandemic and a need for digital imaging.
Organizations spending on storage are increasingly going to a utility model, buying storage as a service. Pure's subscription services jumped 37% year over year to $120 million, making up one-third of its overall revenue.
"What we saw in Q1 was that the urgency was to beef up what they currently had in, and that was largely on prem," Giancarlo said. "But they wanted the option, they didn't want to sign on to five years of more on prem or anything along those lines. They wanted the option of being able to move to the cloud at any point in time. And that's exactly what our Pure as-a-Service is designed to do in several respects."
While Dell's overall revenue was flat from last year, its recurring revenue increased 16%, to around $6 billion. That recurring revenue includes utility and as-a-service pricing.
"We have a very, very modern way to consume and digest IT with the very best products in the marketplace," Clarke said.
Virtualized sales become common
Remote work has changed the way vendors and customers interact. Like with user conferences, sales calls have become a virtual experience.
"Our teams had to be nimble and quickly embrace a new sales motion," Dell's Clarke said. "We successfully pivoted to all virtual engagements with hundreds of thousands of virtual customer interactions in the quarter."
Clarke said there has been no negative impact, as he and his sales team can meet with more customers than in the past.
Nutanix, which shifted its 2020 .NEXT user conference to a virtual event and pushed it until Sept. 8, has also moved in-person regional shows and boot camps online. Pandey said Nutanix has seen no drop-off in qualified leads for its sales team from going virtual.
"We have gone completely virtual and are seeing comparable yield in terms of qualified leads and virtual meetings for our sales organization at less than half the cost," he said.
Cost-saving: Furloughs, pay cuts, hiring freezes
Unsure of what the immediate future will look like, IT companies are enacting cost reduction plans and realigning their teams.
Dell is implementing a global hiring freeze, reduction in consulting and contractor costs, global travel restrictions and a suspension of its 401(k) match plan.
HPE said it would enact pay cuts across the board, with the executive team taking the biggest reductions. CEO Antonio Neri also said HPE would reduce and realign the workforce as part of a cost reduction plan save more than $1 billion over three years.
Nutanix implemented two nonconsecutive weeks of furloughs for a quarter of its employees and cut executive team members' salaries by 10%.
Not all the vendors are reducing staff yet, though. NetApp CEO Kurian said the company reached its target goal of adding 200 primary sales reps, a quarter ahead of schedule.
Pure Storage's Giancarlo said it's his "personal mission" to avoid layoffs or furloughs through the rest of 2020, although the company did have layoffs -- which he called a "rebalancing" -- before COVID-19 hit. "We believe we're going to be able to perform in such a way that we will not have layoffs or furloughs," he said.
Despite the changes to the data storage market, one constant is data is growing in volume and important in business around the world.
"While we cannot predict when the world will return to normal, the enduring importance of data is clear," Kurian said.