Start-ups alter $15-billion computer storage industry

August 29, 2013 7:01 pm

Start-ups alter computer storage

By Richard Waters in San Francisco

The prospects of an upheaval in a $15bn segment of the computer storage industry caused by the rise of a new generation of start-ups has started to draw substantial investment to the area, to judge from the latest bout of financing news this week. Pure Storage, a private company based in Silicon Valley, said yesterday that it had raised $150m from a handful of the biggest US fund groups in a prelude to seeking a stock market listing.While the four-year-old company’s revenues are estimated to be only in the low tens of millions of dollars, the fundraising has given it a valuation roughly in the middle of the $1bn-$2bn range, indicated Scott Dietzen, Pure Storage’s chief executive.

News of the financing followed the disclosure earlier in the week that Violin Memory, another storage start-up, had filed for an initial public offering to raise up to $172.5m, despite reporting losses that ballooned to $109m last year.

Both companies are part of a new generation of storage companies that have risen on the back of flash, or solid-state, technology, which has started to make inroads into the data centre market that until now has been the preserve of disc drives.

Until recently, flash technology was considered too expensive and unreliable to meet the large-scale storage needs of big companies. However, thanks to the same gradual decreases in chip prices that have also characterised the computer processor market, flash storage has started to move into wider use, extending gains made earlier in consumer technology markets.

The early stage of the market meant that many customers were likely to turn to established tech suppliers rather than start-ups, said Henry Baltazar, a storage analyst at Forrester Research.

He added, however, that tumbling technology prices and demand for new high-performance applications such as real-time data analytics had put companies such as Pure and Violin in a good longer-term position. EMC, the market leader in storage, made its own foray into flash 15 months ago with the $400m purchase of another start-up, Xtremio.

Pure put the cost-per-gigabyte of its products at $3-$4, a level at which it now competes head on with the price-performance of older disc drive technology, said Mr Dietzen.

He attributed the cost reductions to software innovations such as data de-duplication and compression, which use available storage space more efficiently, as well as the falling costs of flash.

Pure, which has now raised a total of $245m, said the latest funding round was designed to carry it through to an IPO that could come next year or in 2015. The round was led by fund groups T Rowe Price, Tiger Global Management and Fidelity Investments. The investment groups have been among the most active investors in late-stage private companies, giving them an early look at some of the most promising up-and-coming technology businesses in the US.