Storage Vendors and Wall Street: Happy Together?

3PAR's impressive public offering today puts the spotlight on the IPO momentum among storage companies in the last couple of years, raising many questions: Is IPO still worth the risk? Who will succeed? Who will fail? Who will be next?

There are no simple answers. Going public is always risky, no matter what business you're in. And in the specialized world of storage, a good outcome depends on lots of moving parts.

It's important, for one thing, to be in an energetic market segment. This last while, we've seen successful debuts by vendors of virtualization (VMware), de-duplication (Data Domain, Double-Take), and InfiniBand products (Mellanox, Voltaire). The jury's still out on clustered NAS, however (Isilon).

IPO candidates also need to be swift in the swim toward profitability. "Storage companies who have a solid business plan and model that includes a steady progression to -- if not achievement of -- profitability and the ability to sustain that growth along with a good technology solution and story should do well with their IPOs," states Greg Schulz of the StorageIO Group. "With their continued growth, those companies should see their reward and that of their shareholders with an improvement in their stock valuation."

In his view, 3PAR has the earmarks of a potential winner. "I would expect that we will see a nice realistic progression as they continue to build their business," he notes.There are pitfalls on the public path. A newly public company is more vulnerable to changes that affect revenue, such as deal slippage, a misfortune that's wreaked havoc with Isilon's numbers.

Still, Isilon's management has no regrets. "Going public is an important step, but it is just a step toward our long-term goals," says Isilon spokesman Jay Wampold. "Going public has a lot of benefits to it. When you enter the public markets, enterprises are much more comfortable with your long-term viability, and it helps industry awareness."

Going public's also a risk, to say the least. But at least one analyst thinks the trend toward IPO is likely to continue. "No doubt about it. IPOs are VC driven and the surest way for founders and employees to make money on their sweat equity," says one industry analyst, who asked not to be named.

So who's likely to be the next to take the public plunge? Greg Schulz has his eye on BlueArc, like Isilon a "neo-NAS" supplier, which has boasted years of momentum and recently expanded its wares to include secondary storage as well as primary.

"BlueArc is another good one to keep an eye on as they move towards profit and IPO, unless like EqualLogic, they get acquired first," Schulz says.

Figure 1: IPO Day3PAR executives on the Exchange trading floor in anticipation of the company's first trade on NYSE Arca. (Photo: Business Wire)

Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.