Dell Technologies on Monday projected positive share growth in enterprise storage, the first quarter that has happened since the Dell and EMC merger closed in 2016. The next question is whether the growth in storage is sustainable, attributable to a seasonal anomaly, or requires a winnowing of redundant storage platforms.
Dell EMC storage revenue climbed 10% during the April quarter, generating $4.1 billion, which the vendor attributed largely to a triple-digit increase in sales of Dell EMC VxRack and VxRail hyper-converged appliances.
The vendor also claimed progress in midrange storage sales, a chronic trouble spot, although company executives declined to provide specific revenue figures. In a related move, Dell said it hired several hundred sales reps last quarter specifically for storage.
Only a passing reference was made to sales of the flagship all-flash Dell EMC PowerMax (formerly VMAX), which exited fiscal year 2018 strongly with a $5 billion run rate. Dell executives also made off limits for discussion the status of internal talks regarding a potential merger with VMware, the virtualization subsidiary it picked up through EMC.
Dell EMC rides momentum of cloud, software-defined storage
Dell’s combined revenue last quarter surged 19% to $21.4 billion. That’s on a net loss of $538 million. Non-GAAP operating income was $2 billion, up 42%.
After taking on sizable debt to acquire the EMC storage business, Dell has paid down about $13 billion of the financial obligations, including a $2.5 billion payment last week to satisfy investment-grade notes. All told, Dell’s debt service is roughly $53 billion, excluding debt related to the Dell Financial Services arm.
The Dell EMC storage portfolio is part of the vendor’s Infrastructure Solutions Group (ISG), which also includes PCs, servers and networking. Overall ISG product revenue of $8.7 billion was up 25%, getting a bounce largely from customers using Dell PowerEdge servers to run software-defined storage.
A strong quarter by VMware generated license revenue of $2 billion last quarter, including double-digit bookings for compute management, end user computing, NSX and VSAN/VxRail. Deferred revenue of $21 billion is up more than $3 billion from the year-ago period, due to recurring maintenance contracts and increased customer adoption of Dell’s consumption-based services and software.
Research firm IDC projects spending on storage systems will grow nearly 10 percent in the first quarter. The Dell EMC storage business is positioned to equal if not outpace the market average, said Jeff Clarke, a Dell vice chairman of products and operations.
Clarke said data centers increasingly want to run software-defined storage to support analytics and similar workloads in a multicloud environment. That helped Dell post its sixth consecutive quarter of increased server revenues, although rising DRAM prices pose potential headwinds.
“Storage had a solid quarter as a portion of the Q4 demand (in March). Following positive demand growth in our fiscal fourth quarter, we expect to gain share year over year in storage when the first-quarter industry share numbers are final. This will be our first quarter (with) storage share gains since we closed the EMC transaction,” Clarke said.
So has the flagging Dell EMC storage business finally turned a corner? Clarke sounded bullish on the idea, but acknowledged the recent revenue figures are only a snapshot in time.
“This quarter’s results are an indicator that our actions are having a positive impact. We continue to be focused on improving storage velocity and acknowledge that results maybe lumpy quarter-to-quarter. That said, our FY 19 storage plan is built on revenue growth and to deliver share gain over the full year.”
Despite several all-flash storage moves at Dell Technologies World in May, the only acknowledgement of flash was the new Dell PowerEdge models that integrate NVMe flash drives and support NVMe over Fabrics. Dell reported in March it exited the fiscal year with a $5 billion run rate in all-flash, and that was prior to launching a rebranded VMAX.
All-flash pioneer Pure Storage in April posted year-over-year revenue of 40% and NetApp did even better, closing its year at $2.4 billion and a 43% year-over-year gain. As is its custom, Dell EMC does not provide revenue guidance to Wall Street.
If you read between the lines, it’s possible to imagine that Dell EMC may start streamlining its storage gear. Clarke said the Dell EMC storage road map will aim for “simplification,” which he said started with the reorganization that resulted in creation of the ISG last year.
“Since then we have started simplifying the portfolio into a road map squarely directed at meeting customer needs and winning in the market. We will offer a single industry-leading solution for every segment in which we compete, including entry level, midrange, high-end and unstructured. Those solutions will put forward the best features and innovation from our current portfolio, plus new innovation to ensure we are offering the industry’s best solutions.”
“We are not exiting any market. All the products on our current road map will continue to be supported over their lifecycle,” as part of Dell’s customer loyalty program.