No Slowdown for Storage

In a week when U.S. unemployment figures shot up, prompting yet more talk of recession and nervousness about the economy, storage companies delivered some decidedly bright financial news.

Strong performances from 3PAR and Data Domain, as well as Microsoft's audacious $45 billion bid for Yahoo, all underline the growing demand for storage-related IT wares, including utility storage, virtualization, and de-duplication.

Last night, thin provisioning pioneer specialist 3PAR, which raised $95 million in an IPO last November, posted a strong set of results in its first quarter as a public company.

3PAR's revenues were $30.8 million, a 51 percent increase on the same period last year and well above analyst estimates of $27.6 million. Despite posting a non-GAAP earnings loss of 2 cents per share, this was still much better than analyst estimates of a 6 cents loss.

With storm clouds gathering over the U.S. economy, financials from storage vendors offer at least some silver lining at a time of growing uncertainty. Earlier today, for example, the U.S. Labor Department announced that the country's payrolls have declined for the first time in four years, sending shock waves through the markets.But it was all smiles at 3PAR, whose CEO David Scott praised a "strong performance" by the company during a conference call last night.

"Customers continue to endorse utility computing as the wave of the future," he said, alluding to his firm's increasing involvement in SaaS deployments thanks to its partnership with VMware. "We also saw the continuing importance of utility storage as tiered storage for mixed capacity workloads."

The exec, who said that he was unable to "detect any sign that macroeconomic issues are affecting business performance or our outlook," was also unable to resist a swipe at HDS and EMC's versions of thin provisioning, which are entitled, respectively, "dynamic" and "virtual" provisioning.

"[It] must be a record for EMC, pre-announcing a product three times that still has a while before it's available," he quipped, going on to describe dynamic provisioning as "flabby provisioning at best."

"The term thin provisioning would be a misnomer," he said. "They need to reserve huge amounts of capacity in pools up front."In a note released this morning, Goldman Sachs analyst Marc Kandel predicted that 3PAR will continue to enjoy strong demand for its products in 2008, with revenues expected to grow 40 percent. "Healthy upside in the December quarter, strong execution, and share gain opportunities should begin to reverse the recent slide in 3PAR shares," he wrote, alluding to investors' recent attempts to "de-risk" their technology investments.

Another vendor apparently enjoying solid demand for its products is Data Domain, which also posted a strong set of results last night. The de-duplication vendor's annual revenues were $123.6 million, an increase of 166 percent on the prior year.

Data Domain's quarterly revenues were $44.9 million, up 151 percent on the same period last year, and well above analyst estimates of $39.2 million.

The vendor's fourth quarter losses also narrowed dramatically to $76,000, or 0 cents per share, compared to losses of $2.4 million and 32 cents per share in year-before period.

On a non-GAAP basis, Data Domain's earnings were 8 cents per diluted share on net income of $5.1 million, compared to a net loss of 25 cents per share on a loss of $1.8 million in the fourth quarter of 2006. Analysts had estimated a net loss of 1 cent per share.The vendor attributed its figures to booming demand for de-duplication technology and confirmed that it added 341 new customers during the quarter.

Analysts predicted more of the same from Data Domain during the coming months. "We expect sales momentum to continue given Data Domain's competitive position and the tangible ROI of its solution," wrote Baird analyst Daniel Renouard in a note this morning.

These sentiments were echoed by Needham & Company analyst Glenn Hanus. "End-user surveys indicate that de-duplication is one of the top storage technologies gaining rapid adoption," he wrote in a note released today. "Data Domain has an early lead with about 50 percent share."

Both EMC and Sun also posted strong results recently, further indicating that the storage industry may not be as much at risk from a spending downturn as other markets.

Another potentially positive sign for the storage sector came with Microsoft's bid for Yahoo this morning. The software giant has already cited its desire to boost its online services presence, hence today's M&A move.Yahoo has been slowly cranking up its online storage presence over recent months, snapping up email archiving and e-discovery vendor Zimbra for $350 million last September, and partnering with IBM around Web search.

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