September 23, 2008

A Compellent Growth Story

As an IT person by day and a stock blogger by night, I occasionally attend IT conferences and seminars that showcase new technologies and trends in the IT market. My most recent adventure took me to Las Vegas, at the VMworld 2008 conference.

Between lectures on best practices and technology previews of some new features that will be included in future releases of Vmware's (VMW) virtual infrastructure, I had the opportunity to network with various vendors on the trade show floor and learn about the products they had developed for VMware. One of the most intriguing vendors present was a company named Compellent Technologies (CML).

Before Virtualization Comes Storage

In order to properly leverage virtualization technology, whether it comes from VMware or Microsoft, companies need to purchase a storage area network (SAN). A SAN is simply a device that is made up of big collection of disks that can be plugged into a computer network. What you then get is terabytes of storage that can be shared between servers that are running virtualization software.

Compellent happens to posses some of the best SAN technology in the marketplace. Although not a traditional server itself, most enterprise SANs run a custom operating system that allow SAN administrators to create and allocate storage space within the SAN.

However, Compellent's technological advantage is that their SANs constantly monitor the data that is stored on the disks. Based on usage, a Compellent SAN will move the most freqently accessed data to faster disks in the SAN. Conversely, it will move less freqently used data to slower (and typically cheaper) disks in the SAN.

The technology industry has taken notice of Compellent's technological advantage. Compellent won a gold "Best of VMworld 2008" award at the Vmware Conference in the "Hardware for Virtualization" category. For the third year in a row, the independant labs at Infoworld declared Compellent's SAN the "Best SAN of the Year." Compellent is the only SAN manufacturer to win this award in consecutive years.

Growing to Profitability

Despite having a great product and a customer base of 1,000 companies, Compellent has yet to turn a profit, but that may change as early as this year. For the second quarter which ended June 30, 2008, Compellent reported revenue of $21 million, up 74 percent from $12.1 million in revenue for the second quarter of 2007, and an increase of 15 percent from the first quarter of 2008. Net loss was $603,000, or $(0.02) per share, for the second quarter of 2008 compared with a net loss of $1.9 million, or $(0.45) per share, for the second quarter of 2007.

The second quarter of 2008 marked the 11th consecutive quarter of revenue growth. 59% of product revenue was from sales to new customers.

Compellent is a Compelling Investment

Compellent made its debut as a publicly traded company in October 2007 at just under $27 a share. With shares trading slightly over $12 a share, and the company not profitable, they cannot be justified as "cheap." However, if the company continues to develop their award winning technology and more customers buy their product as a result, this may prove to be a reasonable entry point into the stock.

The SAN market is very competitive, even for a company like Compellent who although tiny, has superior technology that gives it a significant competitive advantage over its piers. Don't be suprised if one of the larger players in the SAN market decides that they would like to own Compellent's technology for themselves one day and makes an offer for the company.

Disclosure: none

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