Even giddy analysts are catching on. This is pretty much what I articulated in my posts over the past couple of months. But the analyst apparently doesn't realize that half the $2.2B is not hardware. So after 32 years they are selling as many DW appliances as Oracle has done in 3, and next year TDC will sell far fewer appliances than ORCL. RIP TDC
We think Teradata's (NYSE:TDC - News) narrow moat is shrinking as a result of emerging competitive converged systems for data warehousing. While Teradata's data warehousing systems traditionally have dominated the high-end segment of this market, larger and better-positioned IT vendors such as Oracle (NasdaqGS:ORCL - News), IBM (NYSE:IBM - News), and SAP (NYSE:SAP - News) are rapidly encroaching on Teradata's turf.
Teradata has faced increasing competitive pressures from high- and low-end products during the last three years. At the high end, Teradata is facing increasing competition from Oracle's Exadata and SAP's HANA systems, which are shaping up to become viable alternatives to Teradata's Active Enterprise Data Warehouse system. Oracle's Exadata is an appliance that can handle both OLTP and OLAP operations. Without delving into the technical trade-offs of this approach, the key takeaway is that Exadata's ability to support both types of operations represents a compelling value proposition to certain clients.
Therefore, the threat to Teradata is that some clients will find low-end appliances to be good enough to satisfy current data warehousing requirements and thus postpone purchases of the company's higher-end systems.
Another disadvantage for Teradata is its relatively small distribution capacity compared to larger IT vendors. To date, Oracle has sold about 1,000 Exadata systems, which would represent about $1 billion in revenue. In contrast, after being in the data warehouse industry for 32 years, Teradata is on track to generate $2.2 billion in revenue this year. Oracle's management has the aggressive goal of tripling the number of Exadata systems in fiscal 2012, which we believe is achievable.
Therefore, we expect the company will continue to have attractive business opportunities in the near term. However, the long-term picture looks bleak. We expect lower-end appliances increasingly will account for a larger portion of Teradata's revenue. This, combined with higher research-and-development expenses required to fend off competitors will, at best, keep operating margins flat.