CNBC Transcript: Charlie Giancarlo, CEO for Pure Storage 

Below is the transcript of an interview with Pure Storage CEO Charlie Giancarlo. The interview will play out in CNBC's latest episode of Managing Asia on 10 August 2018, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.

Christine Tan (Christine): Okay Charlie, CNBC has named Pure Storage on its disruptors 50 list, what exactly does it mean to be a disruptor in the really boring and traditional data storage business?

Charlie Giancarlo (Charlie): The storage business has been considered to be boring for a long time, not innovating, not going forward. In fact, the major players in the business have reduced the amount their spending on R&D and even on sales and marketing because I think that it's becoming commoditized. I view storage as one of the three legs of the computing stool, along with processors and networking. So if storage doesn't move forward, computing doesn't move forward. We don't think that's the case, we're spending 20 percent on R&D, driving storage forward. What does that mean? That means making it easier, making it smaller, making it faster, and really making it on a full par with computing and networking, driving computing forward.

Christine: Tell me why flash storage is sexy? How fast is the market growing?

Charlie: Flash is the kind of memory that you have in your iPhones or Android phones and it's the kind that is going into most of the new laptops today. But up until now data centers have been based on magnetic storage, the old magnetic disks right? If you try to put together a large amount of storage for any of the more modern applications, this is taking up racks and racks and racks of equipment. It's slow, it's error-prone. We're taking the same kind of flash that's in your iPhone and we put it into the data center environment. We're able to take petabytes of storage and put it into something the size of a microwave oven. It's incredibly faster, much more reliable, and much easier to manage than magnetic storage.

Christine: So Charlie, we're at the server room where companies store their data, at what pace is flash storage replacing traditional magnetic hard disk drives?

Charlie: At an incredibly rapid rate actually. Flash storage is actually growing at a rate of 10 percent a year worldwide, magnetic storage is actually declining 10 percent a year worldwide. If you just look at the average rate of growth for flash, and the fact that it's declining in price, faster than magnetic, what that means is, probably 20 percent or more a year, flash is replacing magnetic.

Christine: You're right because to some extent a lot of it boils down to pricing. Where do you see flash prices?

Charlie: Flash continues to decrease faster than magnetic now year by year. It may decrease more in one year than in another year right? That really depends on the progress of flash technology. For example, two years ago, it declined almost in half, last year, almost not at all. So on average overall it's about a 20 percent a year decline.

Christine: So how much cheaper do flash prices have to go before a full cross-over happens?

Charlie: It's a great question, the cross-over has already happened in what we call "primary storage" right? We believe that over the next year it's going to start to get secondary storage. Now personally, I believe this whole thing, primary, secondary storage is an old concept. With Pure you can do both primary and secondary on one. We call that "hot storage". If you need your data to be hot and available, it should be on flash. If you want it to be cold, archive, what we call "glacier" meaning it takes forever, that can be on magnetic. So we think that data storage is migrating very rapidly toward one type of storage and that's flash.

Christine: Let's talk more about this "hot data" because a lot of companies need that data instantly. To what extent does flash storage provide that?

Charlie: More and more companies need their data all the time for analytics, or just because their customers want access to it. You want access to your bank account not just for the most recent month, but you may want to go back and look several years before to check whether or not you have written a cheque to someone who's asking you for money now. That data needs to be available, the bank can't come back to you and say "Well, we'll tell you in a few weeks whether or not you wrote that cheque".

Christine: So the death of the hard disk drive is inevitable?

Charlie: Well certainly for primary and secondary storage. Certainly for hot data. Magnetic disk drives are going to go the way of the dinosaur. They may still be there for cold storage.

Christine: I'm looking at this server room, and it's small. When it comes to magnetic hard disk drives, how much space does it occupy compared to say, flash storage.

Charlie: Well, let me give you an example. We can generally replace ten racks, and you can see here, we have two racks. We can replace ten racks of magnetic storage with something the size of a microwave oven.

Christine: Wow.

Charlie: Yes. At least ten times smaller.

Christine: So it actually cuts down the floor space as well?

Charlie: Cuts down on floor space, cuts down on heating and cooling, and it cuts down on power.

Christine: So what happens if the system fails, what's the back up?

Charlie: So we have software that allows you to have an equivalent system located in another location, it's sometimes called synchronous replication, we are able to do that and have real time recovery from a system failure.

Christine: So not all is lost?

Charlie: Not all is lost. Well we never lose data. A loss of data is a very bad thing. and even if the system goes down, generally the data is protected.

Christine: Pure Storage is one of the fastest growing tech companies, having crossed the 1 billion dollar mark in terms of revenue in the last fiscal 2018 of January, how fast do you see the company growing from here? How soon before you become 2 billion dollar company?

Charlie: We believe we're going to be a 2 billion dollar company in just the next couple of years. We're growing at 40% a year currently, year on year and that's been very consistent for us.

Christine: You posted profitability in the last fiscal fourth quarter as well. Is the company on track for full year profitability?

Charlie: Yeah, we identified at the beginning of the fiscal year that we expected to be profitable counting the full fiscal year this year.

Christine: Where is the growth going to come from?

Charlie: Growth continues to come from both existing customers and new customers. Existing customers consistently buy more every year than what they had purchased initially. We can grow our top 25 customers by a factor of 12 just over the first four years that we work with them.

Christine: Just out of curiosity in terms of new customers, how many new ones are you signing on a month?

Charlie: About 70% of our sales every quarter are from existing customers and about 30% are new customers. What that indicates, since that's even larger than our growth, what that indicates is that existing customers buy even more in following years.

Christine: As I understand, Pure Storage is focusing exclusively on flash storage, but you're facing a lot of competition from the bigger players, like Dell EMC, you've got Netapp, you've got IBM, you've got Hitachi. What are you doing to differentiate yourself from the big boys to pick up market share?

Charlie: We are the only company that designed our software from the ground level to focus on flash. Flash is a fundamentally different technology to magnetic, all of our competitors took their software, which was for magnetic, and simply replaced their magnetic disk drives with so called SSDs what we call Solid State Drivers. They have not done anything in their software to really optimize for flash storage. Because we've designed ours from the ground up for flash, we've allowed that to be faster because flash is parallel versus magnetic which is serial, we make better use of the flash. We're able to store more data in the same amount of flash than our competition. So I can say with very little hyperbole that we're ten times faster, ten times smaller, and require ten times fewer people to manage our storage as our competition.

Christine: Are you charging ten times as much as well?

Charlie: We're not charging ten times as much. We're very competitive from a pricing standpoint.

Christine: Just out of curiosity, what are your margins like in this increasingly competitive market?

Charlie: Yeah well we've guided 63 to 67 percent margins and we've been very consistently in that environment and that's at least ten points higher than our competition.

Christine: Pure Storage, as I know it, is a two product company. You've got FlashArray, FlashBlades, are you working on a third flash product?

Charlie: We continue to optimize flash and we are working on multiple products actually as we talk. But they will not always be hardware. They will be software and hardware.

Christine: So is a third one coming?

Charlie: I can't even talk about that but we're working on more.

Christine: You know a lot of companies are focusing now on AI, artificial intelligence, and machine learning to really improve their storage management, is this ultimately where the real fight is going to be to determine the clear winner in the flash storage space?

Charlie: I would actually say that we are the clear winner right now in AI and machine learning. Our FlashBlade product, which you mentioned, is the standard product now for AI and machine learning and the reason is because of throughput in-speed. We are literally the only product that can deliver the speed of data necessary for some of these machine learning applications.

Christine: How will it dramatically change the way data storage is done?

Charlie: The way it's changing the way data storage is done is that data storage has been large. It's been complex, which required armies of people to manage and keep going. In our case, we generally only require the part time of one person to manage huge amounts of storage by our customers. You've probably experienced this, you go to your bank account on the internet and you want to figure out what your bank account is on a Saturday and they say "Sorry, we can't support you right now, we're going through an upgrade process, come back on Monday." Part of that is because they're upgrading their storage system and they take them down. Our storage system never has to go down even when it's being upgraded. We provide a hundred percent up time, 6 nines reliability. That means 99 point 9999 percent of the time, the system is up and running.

Christine: I understand you're spending something like 25% of your revenue on R&D alone. What's the next big flash technology you're working on?

Charlie: Well, there are a variety of other technologies that are coming up, 3-D Crosspoint as well as Memristor, with uh by other vendors. We don't think they're quite ready for prime time but we continue to work on them because we always want to bring the latest technology to our customers.

Christine: What is the next thing that's going to be big in terms of revenue burning for you?

Charlie: Well we think that cloud storage is becoming uh very important to many of our customers and we're working on ways for them to be able to leverage the same kinds of values that we bring in enterprise storage into the cloud as well.

Christine: When it comes to new technology, any plans to acquire a company that would give you that new technology?

Charlie: You know, I've been involved throughout my career in a lot of different acquisitions. I always think about it in terms of build, partner and buy. Meaning that if we can build it through our own internal R&D, that's what we'll do. And, as you mention, we spend a lot, far more than any of our competitors in R&D. If we can partner with other companies, to bring some of their technology into our products, we'll do that. But if we need additional technology that we don't have the current skills to be able to provide, we will go out and buy a company to do that.

Christine: Any plans to venture beyond flash at this point in time?

Charlie: None to magnetic. We believe that eventually flash will drop in price to the point that there is no magnetic anymore. It will all be flash. But of course we will look at other new semiconductor solid state technologies in case flash technologies become obsolete.

Christine: As a small player, in the flash storage business, there's a lot of talk also about Pure Storage itself being an acquisition target, how about it, is this something you and management are open to?

Charlie: It's not something we're looking for; you know we believe that we can be a very successful independent public company.

Christine: Not even if the right price came along?

Charlie: Yeah you know we'll always have to do what our shareholders wish to do but our preference is to stay independent.

Christine: What drives you? What inspires you?

Charlie: What inspires me is that I really believe that what we're doing is good for the planet. That is good for mankind.

Christine: That you're going to change the world.

Charlie: That we're going to change the world. I believe that we're going to improve the world, make the world a better place because of what we do and if we do it well.

Christine: Just out of curiosity in terms of new customers, how many new ones are you signing on a month?

Charlie: Every quarter we growth by about 200 new customers, every quarter.

Christine: When it comes to hard disk drives, replacements need to take place every four to five years. How actually does an upgrade happen with flash storage?

Charlie: We are the only vendor that offers what we call an "evergreen program", with our evergreen program it means that we upgrade not just the software but the hardware we upgrade every three years with no downtime to our customers.

Christine: So what sort of cost savings are we talking about?

Charlie: Migrating data from an old system to a new system can take weeks if not months and it costs them a huge amount in terms of labor to be able to do that. So we believe that our TCO, our total cost of ownership, is significantly less than our competition.

Christine: As a relative newcomer to the flash storage space, Pure Storage is growing at a fast clip of 40% year on year. How fast can you continue to grow at this rate?

Charlie: I believe that we can continue to grow at this rate for quite some time. It is a big market, we're talking about a 30 billion dollar storage market and perhaps even bigger if we're able to accomplish some of our goals.

Christine: But it's such a competitive market, how long can you continue at this rate?

Charlie: Well the competitors are tough, but they're not investing the way we are in new technology. As I said, they think of it as a commodity. We think of it as technology that is necessary for the computing market to grow.

Christine: So at this stage are you actually growing market share or are you growing profitability?

Charlie: Well, it's a great question. We're growing both. We are a profitable company and we intend to continue to be a profitable company, but we're ploughing every additional dollar we make into further growth.

Christine: So when it comes to pricing, would you drop your pricing just to grow market share at this point? Or are you trying to keep things stable?

Charlie: I don't think we need to, really our challenge is growing our company fast enough to continue to grow our company at our current revenue growth rate. So the better investment for us is not dropping prices, investing more in our sales forces and our R&D engine.

Christine: When it comes to the whole aspect of the bulk of your revenues, I understand that half of your revenues come from within the US itself, where is the next stage of growth going to come from? Overseas?

Charlie: Absolutely. So today, about 70% of our revenue comes from the US and actually less than 30 from outside the US. In a mature company it really should be closer to 50-50 and so we continue to invest overseas, our growth outside the US is actually higher than our growth in the US, so I expect that number to continue to increase closer towards 50-50.

Christine: Which markets will you focus on?

Charlie: Both Europe and Asia, we're in 65 countries today. We plan on continuing to invest very heavily in those countries that we're in. Because we want to gain scale in those countries before we expand even further.

Christine: I understand that when it comes to China you're actually testing out the China market with a local partner there, how's it coming along?

Charlie: Well, we're just getting started, we're only one quarter into it so far, we already have revenues, and so that's very fast to have within just three months period of time. But we're partnered with a company called InnoMITS, they're a new company, but we're familiar with the management team there, who have worked in the storage market for decades and they're off to a very good start we're very proud of them.

Christine: China is a very competitive market though. Do you think you have what it takes to make it in the China market?

Charlie: Well, we do. We do. Because we're coming in with a differentiated offering again, we're not going in with the same old storage. We're going in with flash that is optimized for performance.

Christine: Which companies are you targeting in China, are you talking about the state owned enterprises, the smaller companies? Who are you targeting in China?

Charlie: No we're targeting the large enterprise customers that have sophisticated workloads. So it includes the state owned, but we're not exclusively focused on state-owned. We're really very much focused on the financial sector, focused on healthcare, very much focused on EDA or electronic design and anything that requires lots of data and very fast access to it.

Christine: Lots of concern about a trade war that's brewing between the US and China, and how that can actually hurt you as tech companies, are you worried? Could it impede your growth in China?

Charlie: I'm hopeful that they'll come to a negotiated settlement. We really think the rhetoric is not healthy at the moment. But we believe that we're just entering China, it's a long game, and we have a very long focus in terms of long range focus, about developing our business in China. So we think in the long term, the countries will continue to have a good relationship together.

Christine: There is also the issue of Chinese tech companies, lots of security concerns there about them operating in the US, companies like ZTE, Huawei, they've been in the news recently, are you worried about backlash as an American storage player in China?

Charlie: We always worry about the political situation but again, we have a long range view of this and we think that overtime that the relationship between the two countries will be wonderful.

Christine: Right now about 25% of your sales come from outside the US, how fast could you grow overseas? Do you have a target in mind?

Charlie: Currently, we haven't broken it down specifically, our growth rate outside the US is much higher than it is inside the US and I expect that to continue. I would like our overall sales outside the US to be roughly equal to our sales inside the US.

Christine: So what time frame are you looking at?

Charlie: We should be able to get there in three to four years.

Christine: Pure Storage was founded in 2009, by John Colgrove who is now your chief technology officer and John Haze who has since left the company. Any insights you've gained from these two visionary founders?

Charlie: You know the interesting thing about them was the cognitive dissonance that they had, just the fact that they were brilliant, one very much very future oriented and the other one very practical in terms of what customers actually wanted. And it almost was like Lennon and McCartney. I really do believe that one needs to bring in different viewpoints and different skills into a company and have them sometimes clash but most of the time really develop things that are unique.

Christine: When it comes to experience, you have an incredible wealth of experience, at working at Cisco during its formative years, are you trying to turn Pure Storage into a Cisco in a flash storage space?

Charlie: You know when I was at Cisco, when I joined them when they were just crossing a billion dollars, they had bought my company Kalpana and I was fortunate enough to be with them as we grew the company, you know, in an executive position, as we grew the company to 45 billion. I left the company in 2007. It was a remarkable ride, the company was a different company every two years, and we grew both by organic growth internally as well as inorganic by acquiring companies and it's a model, of course, that one wishes as well for Pure. So we'll see how far we get.

Christine: I'm curious, what made you join Pure Storage? And this was just last year.

Charlie: Yeah, just last year. I've been in the seat for just almost a year now. I just saw amazing potential. I saw an industry that was going down a path of commoditization, of reducing their investment in R&D, of reducing their investment even into their channel in the sales force and really, it was a contradictory move on my part. What I saw, a contrarian move, what I saw was a company that had a great technical team, a great sales force to remake the storage market. And I just thought, this is an important market, it's an important industry for our customers, and it really needs a champion. And that's what I saw in Pure.

Christine: So you really had to do your research.

Charlie: I did a lot of research. Yeah.

Christine: And you were head hunted for the job?

Charlie: I was called directly by the board.

Christine: When it comes to experience, you have an incredible wealth of experience, at working at Cisco during its formative years, are you trying to turn Pure Storage into a Cisco in a flash storage space?

Charlie: From your lips to God's ears.

Christine: But based on gut feel, do you think Pure has what it takes to be a Cisco in a flash storage space?

Charlie: I think we have that potential. We live in a very big market. 30 billion plus in terms of total sales in the storage market, it's an important market. It's an important market for our customers. I think we have that opportunity

Christine: You're 60 years old, you have a science and engineering degree with a Harvard MBA, you've worked at Cisco, Silver Lake Partners now heading up Pure Storage, how would you describe your leadership and your management style? What does it take to drive a fast growing technology company like Pure Storage?

Charlie: In my opinion, it takes two things. It's something I've said about my leadership style now for quite some time: Innovation and operational excellence. This is the technology business, you can't just be operationally excellent, although that's required. You have to be constantly reinventing, not just your product, but your company. You have to constantly be reinventing the way you go to market, the way you market, the way you build products and what you do for your customers. And that's really what marks my style. The final thing I'll mention though is that it requires accountability by everyone in the company. Everyone has to feel like an owner, because we are all owners of the company and they take it on as their personal mission to drive the success of the company.

Christine: Are you performance driven?

Charlie: Very much so. Yes.

Christine: What drives you? What inspires you?

Charlie: What inspires me is that I really believe that what we're doing is good for the planet. That is good for mankind.

Christine: You're in-charge of twenty-five hundred employees at Pure Storage, what does it take to foster a culture of innovation within a company so it stays at the forefront?

Charlie: Right, you need to make people believe that what they do matters. That if they believe that we should be doing something different, that they have the power to make that, to make that change. Again, it's about allowing people to feel like they have, not just responsibility, but they have the ability to make that change. If you bring in people from different walks of life, with different viewpoints and of course you have to recruit well and give them the freedom to be able to do that, that's what allows you to grow.

Christine: Are they allowed to make mistakes?

Charlie: Very much so. If you can't make mistakes, you can't make improvements, I believe. I'm a skier, I don't know if you've ever skied, but you'll never improve if you don't fall down. You got to be able to fall down, figure out what you did wrong, and do it again.

Christine: But not too many times though.

Charlie: You just don't want to do it the same way.

Christine: And finally, as the CEO of Pure Storage, what's your ultimate ambition for the company? Where do you see it five years from now?

Charlie: I'd like to see us continue to be a very dynamic, high-growth, independent company as a public company.

Christine: Independent?

Charlie: Independent.

Christine: But not be acquired?

Charlie: We're not looking to do that, no.

Christine: Thank you very much for talking to me.

Charlie: Thank you very much.


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