Release Date: December 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pure Storage Inc (PSTG, Financial) exceeded both revenue and operating income guidance for the third quarter of fiscal 2025.
- The company secured a significant design win with a top four hyperscaler, marking a major milestone in providing flash storage for hyperscale environments.
- Pure Storage Inc (PSTG) announced a deepening collaboration with Kioxia to support increased flash demand in the hyperscale industry.
- The company continues to see strong demand for its //E family and FlashArray//C solutions, enabling cost-sensitive workloads to transition to all-flash.
- Subscription services annual recurring revenue grew by 22% to $1.57 billion, demonstrating robust growth in this segment.
Negative Points
- The overall IT spending environment remains muted, with heightened competitive pressures affecting the market.
- There was a shift in Evergreen//One opportunities, with more converting to traditional sales, impacting the expected growth of subscription services.
- Operating margin guidance for fiscal 2026 is expected to remain flat at 17% due to increased investments in scaling operations for hyperscale opportunities.
- The company does not expect meaningful revenue contribution from the hyperscale design win until fiscal 2027.
- Product gross margins are under pressure due to the strategic focus on transitioning cost-sensitive workloads to lower-margin solutions like the //E family and FlashArray//C.
Q & A Highlights
Q: What drove the decision by the hyperscaler to choose Pure Storage over building their own solution, and what is the potential revenue opportunity?
A: Charles Giancarlo, CEO, explained that Pure Storage's unmatched reliability, power savings, and price-performance ratio were key factors. The hyperscaler valued Pure's ready-to-deploy technology, which fit well with their architecture. Kevan Krysler, CFO, noted that the hyperscaler market drives 60-70% of all disk sales, indicating significant long-term revenue potential for Pure. However, meaningful revenue contribution is expected in FY27, with no hardware included in the sale.
Q: Can you explain the financial mechanics of the hyperscaler deal and whether they plan to go 100% flash?
A: Charles Giancarlo, CEO, clarified that Pure is licensing both software and hardware design, with the hyperscaler purchasing hardware from an integrator. The hyperscaler aims to use a consistent architecture across most of their storage, including higher performance storage, which is currently SSD-based.
Q: What is the expected size and structure of the hyperscaler deal, and will it be gross margin accretive?
A: Kevan Krysler, CFO, stated that the deal is multiyear, with volumes yet to be determined. The majority of the deal's value will be hardware, impacting gross margins. The company expects gross margins to align with current company averages.
Q: How does the opportunity evolve with density expansion of DFM modules?
A: Charles Giancarlo, CEO, noted that while the opportunity doesn't depend on specific modules, the roadmap, including higher density modules, played a role in the hyperscaler's selection. The technology's ability to serve both low-cost and high-performance needs with a single architecture is a significant advantage.
Q: How does the CoreWeave partnership differ from the hyperscaler opportunity?
A: Rob Lee, CTO, explained that the CoreWeave partnership expands Pure's presence in the GPU cloud market, making Pure's technology available in CoreWeave's dedicated cloud. This partnership builds on a previous large-scale deployment and is separate from the hyperscaler deal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
