Virtual Storage Sheds Help Companies Store Vast Amounts Of Data

• Kevin Harlin
• On 6:49 pm EDT, Tuesday October 27, 2009

A company's incoming e-mail might be critical. But those files buried deep in the inbox are probably not.

Keeping that high-value, must-have-now data on expensive high-speed memory drives is an easy call. Getting that might-need-someday out to a cheaper, slower drive somewhere else has always been the challenge.

That's what Compellent Technologies (NYSE:CML - News) does.

By managing vast volumes of data on a granular level and assigning them to the cheapest drives that fit the need, the company says its systems can lower storage costs by half and cut power and cooling costs by up to 93%.

Eden Prairie, Minn.-based Compellent claims to be the only storage company that wants its customers to buy fewer drives. That's proving compelling, even in this economy. It's posted 15 straight quarters of revenue growth and has said it expects to show a 16th when it reports third third-quarter numbers on Wednesday.

More Efficient

"If we can move data that is static to the lowest tier, that saves us a tremendous amount of power," said Todd Loeppke, technical vice president of storage architecture with Savvis (NasdaqGS:SVVS - News), a provider of outsourced Internet infrastructure to companies and governments.

This month, Savvis announced it had selected Compellent to provide the storage platform for a new cloud infrastructure platform it's launching later this year.

Loeppke says Compellent's technology can sort the data at a finer level than other larger developers of storage area networks, or SANs. He likened it to an overfilled garage. Larger SANs would move everything in the garage to a distant storage shed. Compellent's systems only move the boxes that haven't been used in a while, but keep close the stuff used often.

"Not all data is equal," Loeppke said.

Craig-Hallum analyst Eric Martinuzzi in a client note called the Savvis relationship "a huge endorsement" of Compellent's offerings.

The SAN market hasn't been immune to the slow global economy.

Gartner estimates the market in 2008 at $12.4 billion. It projects that to shrink to $11.1 billion this year. But the firm thinks it will start growing again next year, and reach $13.9 billion in 2013, a 2.3% compounded annual growth rate.

Compellent is growing faster than that.

Phil Soran, Compellent's president and CEO, says the current economy has slowed decision-making cycles. But Soran said Compellent saw signs of life in the second quarter. The recently announced Savvis deal was inked then, for instance.

But even before those signs of improvement, Soran says customers were receptive to his products.

"The data growth is not slowing. You can't quit storing your data even if it's a bad economy. But you better find a more efficient way to do it," Soran said.

Soran, who was previously the chief executive of the storage networking firm Xiotech, founded Compellent in 2002.

The company posted 6 cents earnings per share last year, its first annual profit. Analysts surveyed by Thomson Reuters expect that to surge to 22 cents EPS this year.

In the second quarter, revenue climbed 37%, to $28.7 million. Earnings per share were 5 cents, compared with a flat result a year earlier.

Compellent has said it expects revenue between $30 million and $32 million. The analysts' consensus estimates call for 5 cents per share, up from 3 cents a year earlier.

Craig-Hallum's Martinuzzi said small-cap firms such as Compellent benefited over the summer by EMC's (NYSE:EMC - News) "spending like a drunken sailor" to buy Data Domain for $33.50 per share. He thinks excitement about more mergers and acquisitions in the sector might have pushed the company's stock price ahead of the fundamentals.

Room To Grow

Martinuzzi also notes channel concentration as a risk. The company earned 47% of revenue last year from its top 10 customers. One customer accounted for 12% of sales. Another one brought in 10%.

And Compellent does not have a large international presence yet. About 16% of revenue came from overseas last year.

But Compellent has made some progress there. In 2008, the London Borough of Hillingdon became an early adopter in the United Kingdom. Roger Bearpark, assistant head of information and communication technologies for the borough, said Compellent's storage solutions and VMware's (NYSE:VMW - News) software virtualization helped it drastically reduce its hardware footprint.

That's cut its power consumption. And the more-efficient storage drives give off less heat, which lowers the community's cooling costs.

"The Compellent proposition was clear, and the payback was obvious," Bearpark told IBD.

Buzz up!