Teradata ekes out sales and profit growth

Data warehousing Dell target?

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Data warehousing system maker Teradata has reported that both sales and profits were up a smidgen in the final quarter of 2009. It's cautiously optimistic about this year, despite increasing pressure from Oracle, IBM, Netezza, and others in the data warehousing racket.

In the fourth quarter ended in December, hardware and software product sales - meaning the company's eponymous data warehousing clusters - fell by 4 per cent to $239m as IT shops continued to be stingy with their budget money.

But companies that rely heavily on data analytics to help steer their business were nonetheless interested in engaging Teradata to help them squeeze more out of their iron, and consulting services rose by 4 per cent to $140m. Maintenance revenues also rose by 7 per cent, to $117m, allowing Teradata to eke out a 1 per cent overall revenue bump in the fourth quarter, to $496m. Net income for the quarter rose by 6.3 per cent to $84m.

For the full year, Teradata's product sales were $772m, down 9 per cent, and services revenues were $937m, up 3 per cent. Total revenues were $1.71bn, down 3 per cent. In the grand scheme of the Great Recession, this is about as good as it gets, especially when you consider that Teradata brought $254m to the bottom line, up 1.6 per cent from 2008's level.

In the quarter, as for the entire 2009 year, the Americas region bolstered Teradata's numbers. In the fourth quarter, Teradata's revenues in the Americas, rose by 5 per cent, to $300m, and for the year, sales in the region were down a fraction of a per cent to $981m. EMEA had a 7 per cent drop (14 per cent as measured in local currencies) to $106m in the quarter and fell by 5 per cent to $430m for the year (but up 2 per cent at constant currency).

The Asia/Pacific region accounted for $90m in the fourth quarter (down 4 per cent) and for $298m in the full year (down 9 per cent). Gross margins are a lot higher in the Americas region as well, a phenomenon that Teradata doesn't explain, but in a conference call with Wall Street analysts, Michael Koehler, Teradata's president and chief executive officer, said that upgrades for data warehouses installed at Australia banks were lumpy, expansion at telecommunications in China and Japan were delayed, and Japanese retailers pulled back on warehouse projects.

Last year, Teradata rolled out Teradata 13, which Koehler characterized as the most powerful database in the company's history. (Teradata uses Dell iron to host its database and related analytics code, and Dell is a big customer too, which just so happened to have upgraded its own data warehouse in the quarter).

The company also rolled out an Enterprise Analytics Cloud, which parks Teradata's database and analytics on Amazon's EC2 compute utility, and Virtual Storage, a kind of hierarchical storage setup that moves data around to different storage subsystems in a warehouse based on the performance and usage needs of the applications.

Koehler provided a sense of how different industries generated sales for the company in 2009. The financial service sector - including banks, capital markets, credit card processors, and insurance companies - accounted for 28 per cent of sales last year, about the same as in 2008. The communications sector - which includes telecom, cable, media and entertainment, and Web 2.0 firms - accounted for 23 per cent of sales, down five points from 2008.

Retailers accounted for 17 per cent of sales, growing in the double digits in 2009, and manufacturers made up 10 per cent of sales. About 8 per cent of Teradata's revenues in 2009 came from the healthcare sector, 7 per cent came from governments at all levels, and 6 per cent same from travel and transportation. Government and healthcare are seeing growth, thanks in part to the Obama Administration's economic stimulus efforts.

Looking ahead to this year, Teradata said it expected revenues to grow by between 7 and 9 per cent, with between 1 and 2 per cent of that coming from currency exchange rate benefits. Teradata added that it expected earnings per share to be in the range of $1.54 to $1.64, up about 9 per cent at the midpoint compared to the $1.46 per share the company attained in 2009. And no doubt it will be helped by share buybacks as in 2008 and 2009, when Teradata shelled out $175m and $176m, respectively, from its cash pile.

The company generated $455m of cash in 2009 and had $661m of it sitting in the bank and in short-term investments. There's $234m in stock repurchases still authorized by the Teradata board. Assuming it can generate the same amount of cash this year (it will likely be more) and spends around $175m again in stock buybacks, you're still talking about Teradata ending 2010 with something like $940m in cash. Which means Teradata can make acquisitions to bolster its product line and even crank up its marketing and development budgets if it so pleases.

Of course, with a $4.8bn market capitalization and a strong partnership with Dell, it might just make sense for Dell to acquire Teradata and make a go of it like NCR once did. Dell needs some story to tell as Oracle and IBM crank up their analytics businesses. Dell has $9bn in cash and equivalents, net of long-term debts, and there are more stupid deals it could do.

Now that Oracle has bought Sun Microsystems and frozen out both Dell and Hewlett-Packard as its go-to buddies for bashing big SMP boxes with clusters, Dell has to do something to get into the high-end game. Maybe Dell can even convince Teradata to make clusters that can do online transaction processing as well as data warehousing and analytics, as Oracle says it can do with its Exadata V2 appliances. ®

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