Exclusive Interview With Kevin De Nuccio, President and CEO, Violin Memory

Kevin DeNuccio, 54, is president, CEO and board’ member of Violin Memory, Inc. since February, 2014. His father is from Naples, Italy. Most recently, he managed Wild West Capital LLC, an angel investing, management and technology consulting firm he co-founded in 2012. From 2010 to 2012, he served as CEO of Metaswitch Networks, a London-based, privately-held provider of IP and telecommunications software, where he oversaw two acquisitions, AppTrigger, a Texas-based service broker vendor and Norway-based instant messaging and presence systems provider Colibria. Prior that, he served as president and CEO of Redback Networks, a publicly-traded provider of edge routers that was acquired by Ericsson for $2.1 billion. Additionally, he has held executive positions with Bell Atlantic Network Integration, Cisco, Wang and Unisys. He also currently serves on the boards of Calix, Metaswitch Networks and Northeastern University. He earned a master’s degree in business administration from Columbia University and a bachelor’s degree in Finance from Northeastern University. His hobbies: ranching in Santa Cruz Mountains, physical labor and hunting.

StoragenewsLetter.com: You are lucky to have such an easy job as last month you succeed Don Basile fired from Violin and qualified by FOXBusiness as “The Worst CEO of 2013“. Don’t you think so?
DeNuccio: Yes it makes you look good. But it is important to know something, I’m a Silicon Valley executive, in many technology company this is a very normal thing that happens, either a founder or engineering leadership starts the company, creates a great product, great engineering team, and then as the company gets successful and gets to a certain size you have to make a management transition to people who have scaled big companies.

It’s normally a very normal thing in technology startups to go through these transitions. Ours was particularly challenging because it was right after our IPO, a very visible time for a company to have to go through their management transition, and that’s why there has been so much fire around it.

Yes but Basile was at Fusion-IO before, so he should know the job.
No. But he’s a brilliant man, he built the best product line in the industry. I respect that.

$186 million were invested into the firm since inception in 2005 before being public last year. Are investors still Samsung, Toshiba, Jupiter Networks and SAP shareholders?
Yes, all of them. The three biggest strategic shareholders with Toshiba being the biggest.

But you are currently on the board of SanDisk in your official bio that was published today on your web site, and strangely not on SanDisk web site!
I think the website didn’t get updated, because I resign the day I started at Violin.

Where do you buy your flash chips?
Directly from Toshiba.

It’s a disaster since the company’s IPO when the company raised less than $162 million, last October. Shares were down 17% on opening day. Why?
However the IPO was marketed, people didn’t have confidence in it. I don’t know why, I can never figure out why Wall Street does what they do.

Your company ended fiscal last January 31, 2014, with revenue at $108 million and net loss more than quadrupling at $150 million. Why such a loss?
The way I would frame the picture is that the company went through nearly 6 months of transition and change, and still grew 44% Y/Y. It’s testimony to the technology. That’s the first critical point.

The second thing is, some of the losses are due to a disruption of the business, you have to clean up challenging problems such as inventory or compensation. But it’s a lot yeah.

On December 2013, Violin Memory announced “it expects to achieve profitability in 2015.” Is it achievable?
At the end of next year I think that it is achievable.

Why didn’t you give the outlook in revenue and net income for your current quarter, meaning no visibility?
I don’t think it would have been practical or credible. We gave thing that we think we can control right now:

Expenses because we can manage our business, know how much money we can spend.

And growth margin because we understand what’s happening with the cost of the product and what it sells for.

Give revenue guidance while we’re making so many changes and evolving how we run the business, say that I know exactly what the numbers are going to be in these next couple of quarters. It would make me lose credibility with Wall Street.

So what’s the outlook?
I think we will remain a high growth company.

What’s you plan to recover?
What we did was a few major changes to structurally change what we were doing.

We consolidated three or four engineering organization team to one to get efficiency.

We exited products that are not in the strategic core of the main value proposition that I think Violin brings to the market.

We re-organized and cut layers of management in the sales organization to evolve the way we go to market, relying much more on partnerships, meaning we get higher leverage in our selling model.

And you reduced the number of people.
Yes, that allowed us to reduce the head company by more than 20%.

The combination of those things is giving us now a financial model that is much more measurable and manageable. We can measure revenue growth and expenses to grow the company and make our walk to profitability.

What happens to the numerous class actions filled vs. Violin last year?
It has been consolidated to one law firm. I don’t believe that it has very much merit and it won’t go on for a long time.

Why are you stopping PCIe flash cards? It seem to be a nice growing market. Will you sell or just stop this business?
It’s a different market than our core market. It’s on the server-side of the architecture. It’s a PC component, it’s a very different strategy than what I think our big opportunity is. It was not helping us focus.

I’m getting more confident that we may be able to sell it. Several companies under non-disclosure are interested. But if someone doesn’t buy it we are going to shut it down.

Do you design your own SSDs for your systems?
No. The big difference between what we do and virtually every of our competitors is that they are using SSDs, which are packaged flash chips, to build systems. We build our systems directly from the flash chip itself.

Because of the strategic relationship with Toshiba we’re able to understand their roadmap and adopt the technology sooner than people using SSDs could. We get early access to technology, we can implement it in our systems at two to four quarters ahead of the competition. So people in SSDs are always a generation behind us.

We’re innovating around the chip itself, and at a system level we’re able to architect because we can talk directly to the flash versus talking to an SSD. An SSD is a package that’s pretending to be a disk, so it has significant disadvantages. We’re innovating around the benefits of flash and get around the endurance problem.

Finally maybe you’ll be saved thanks to your NAS and Web caches assets acquisition from Gear6 in 2010, and software boosting business critical applications for SSD appliance from GridIron Systems in 2012). At which prices?
I don’t think we’ve ever went public on the price. We acquired GridIron, we launched the product last quarter. So it’s a new product with that technology.

Bloomberg wrote at the end of January that: “The maker of flash-memory storage that’s plunged in value since its IPO last year, has attracted takeover interest, the Clinton Group Inc., an activist shareholder, said.” More info about that?
You’re assuming that’s fact because it is in Bloomberg. Obviously because we have very strategic large technology investors, the company is a strategic asset. I’m sure there has been interest in talking to the company about acquisition. I’m not aware of any.

I think we have to run our business to build a good company and capitalize in opportunities we have in front of us. But we’re valuable to many business segments and technology companies. But right now takeover is not a reality.

How many companies have designed all-flash storage systems in the world? (36)
There are many competitors. I believe there is now at least 20 start-ups that have been founded by venture capital because the marketplace is a big opportunity. I assume it’s somewhere between 20 and 30. [The exact figure is 36 up to now. Ed.]

Can you give your opinion in one sentence on some of some other all-flash array companies:

Cisco/WhipTail Technologies: New company, don’t know much.

Dell: Great company, not sure of their success in storage.

EMC/XtremIO: Not yet a big competitor in the market.

Hewlett-Packard: Yes, a competitor.

HDS: They have systems as well yes.

Huawei Tehnologies: I’m not aware of us competing with them in the market.

IBM/Texas Memory Systems: They are a big competitor.

Kaminario: Haven’t seen them in the market yet.

NetApp: Still a small player in flash.

Nimbus Data Systems: Haven’t seem them in the field very much.

Pure Storage: Very active.

Silicon Graphics International/Starboard Storage Systems: Haven’t seen them.

Tegile Systems: Haven’t seen them either.

Tintri: No.

How do you differentiate from them?
This is a very large market yet significantly disrupted by flash. It will continue to change and evolve and that’s why there is so many companies building technologies in and around because the opportunity is so big.

Typically the big companies find it very difficult to innovate so you see them acquiring technology. Our advantages are at several levels:

We’ve been in the business longer than anybody else and that’s allowed us to capture the largest companies in the world in their most critical applications. Secondly, because we’re innovating around flash and not SSDs we can create better performance and better endurance. That’s the things that will continue to keep us in the lead over a number of years.

What are the capacity range of your systems?
From 12TB to 64TB.

Average price of a system?
ASPs are $200,000.

You don’t have de-dupe or compression a must-have features considering high price of SSDs.
I think there is a place for de-duplication. In the space where we penetrated the market, flash has been adopted early, it’s mostly about performance in databases. You don’t do de-duplication in databases because it takes to much power away.

But it lowers the price.
In early stages of a market, are people trying to solve for price or a business problem? Up until this point, price is less material.

As we take our strategy from solving business problems and expand addressable market we will probably look at bringing that kind of technology out.

Roadmap?
It’s three-fold:

The 6000 array family, with multiple price point and sizes. We will increase the density and performance and focus on driving the cost down. We’ve assembled a team just to work on cost reduction.

Then the Maestro, the product that came from the GridIron acquisition. It became generally available last quarter. It was a successful entry into the marketplace. It is a very important technology to us.

And then the software that we are going to wraparound those two platforms.

How many customers?
Now over 300.

Main ones?
A lot of large banks, retailers, cloud companies.

Channel?
Today we sell primarily direct in North America and to channel globally. We’re trying to introduce a more strategic partnership go-to market everywhere

OEMs?
Possibly, but not yet. The most important relationship for us is software. SAP is a stockholder. We announced that we were working with Microsoft. Those kind of applications need a way to enhance performance and compete with the market leader at Oracle.

Those are the biggest opportunities to create demands for our product more broadly and as we form those relationships, those combined products will make into market in different ways.