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Netezza squeezes out Q4 growth

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Data warehousing and analytics appliance maker Netezza has closed out its fiscal 2010, and like many hardware and software vendors in the IT racket, the company's profits took a hit. Unlike many hardware suppliers, Netezza actually managed to get a tiny bump in sales in the quarter and for the year, despite the economic meltdown.

In the fourth quarter ended January 31, Netezza said that its product sales rose by seven-tenths of a point to $38.3m, and services revenues were up 22 per cent to $15.3m. Thus, overall sales were $53.6m, up 6 percent compared to the year-ago quarter. Net income was down 87.5 per cent, to $2.85m, but the comparison was a rough one in that Netezza booked an $18.4m income tax benefit in the year-ago quarter. If you look at income before taxes, then the drop was only 29.8 per cent to $3.1m.

For the full fiscal year, which spanned from February 2009 through January 2010, product sales were down 6.4 per cent, to $134.3m. Services sales, the savior for so many IT players during the recession, rose by 27.1 per cent for the year, to $56.3m, and that allowed Netezza to post overall revenues for the fiscal 2010 year of $190.6m, up 1.5 per cent.

Net income, even before taxes, was slammed during the year as sales, marketing, research, and development costs all rose. Net income was down 86.7 per cent, to $4.2m, in part because of the tax reversal but also because those four expense areas mentioned above rose by $16.8m for the year. Netezza is having to spend more money to close deals while at the same time spending more dough on product development.

The good news is that Netezza now has more products to sell. The TwinFin blade-based data warehousing appliances announced last fall are starting to get traction, according to Jim Baum, Netezza's chief executive officer, who spoke to Wall Street analysts after the numbers were announced.

Baum said that Netezza has over 100 TwinFin appliances in proof of concept, pre-production, or production, and it's doing about as well as the company expected. (The TwinFin marries an IBM two-socket Xeon blade server with another blade that has Netezza's homegrown field programmable gate arrays for accelerating the performance and filtering the data for SQL transactions running on a heavily modified version of the open source PostgreSQL database).

In late January, the company announced a baby version of the TwinFin platform, called Skimmer, with a lower price tag, and it has rolled out a special data warehousing and analytics box called the Retail Analytics Appliance, which is packed with third party software specifically to help retailers run their businesses. The company also announced an alliance with Japanese server maker NEC in early February that will see the Netezza hardware and software deployed on NEC iron, and it said a few weeks ago that it was tweaking the TwinFin platform to open it up so Java, C++, Fortran, or Python applications running on a revved up platform called TwinFin(i), could make use of the FPGAs to rapidly extract data out of a warehouse and perform analytics operations on it.

Third party analytics software from companies such as the SAS Institute are also being allowed to run on this TwinFin(i) box, and it is also capable of running modern "big data" crunching algorithms, such as those embodied by Hadoop.

That explains where the profits went in fiscal 2010 - into all that product development.

Baum said in the call that Netezza added 25 brand new customers in the fiscal fourth quarter, and it added 79 new customers for the full year. A lot of these deals were big ones in the telecommunications, financial services, and digital media sectors, but Baum did not name names. Netezza also "decommissioned" machines at 19 small accounts that accounted for under $300,000 in sales in fiscal 2010, and the official tally of customers, according to Patrick Scannell, Netezza's chief financial officer, stood at 325 at the end of the quarter. Scannell said that the average deal size was around $1.1m in the quarter, and that TwinFin products represented 79 per cent of sales during the quarter.

Most of the TwinFin machines in the field are one- or two-rack systems. One telco customer, who accounted for 10 per cent of the sales during fiscal Q4, bought an eight-rack TwinFin appliance, which is being added to an existing 17-rack system based on a prior generation of Netezza appliances. New customers accounted for 37 per cent of total revenues in fiscal Q4, with the remaining 63 per cent coming from the company's installed base.

As for Oracle's Exadata V2 data warehousing and OLTP platform, which was announced last September mixing Sun Microsystems x64 blade servers and storage arrays with Oracle database and storage software, Netezza did not have much praise. Baum said in the call that Netezza's competitive win rates against IBM, Oracle, and Teradata, its main competitors in data warehousing, "continue to be strong" and that wins against Teradata in particular picked up in the past twelve months.

Netezza's win rates against Oracle were little higher in fiscal Q4 too, despite the advent of Exadata V2, and Baum said that the only deals the company has lost to Exadata boxes are where customers did limited or no benchmarking ahead of an acquisition. Baum added that among customers and prospects looking at Oracle's data warehousing and OLTP appliance, "most see the platform as a consolidation server for other infrastructure running OLTP-based applications, not as a complex analytical processing platform." Baum said that Netezza's win rate against Oracle was around 80 per cent, and most of the time it is competing against Oracle software running on various iron, not against Exadata V2 appliances.

Netezza had $154.4m in cash and short-term investments as the quarter and year came to an end, a few million bucks lower than when it exited fiscal 2009. That cash, said Scannell, was used to build up TwinFin inventories to do proof of concepts.

Unlike many IT players, Netezza is also returning to its practice of providing some guidance as it looks ahead to the next year.

"Given that we have seen stabilization in the economy, better predictability in our forecast, and our visibility has improved over these past quarters with increasing proof of concept and pipeline growth, we are in a position of once more offering annual guidance on our business," said Scannell.

And to that end, Netezza is projecting 20 per cent revenue growth in fiscal 2011. The company also said it would keep spending on research, development, marketing, and sales - adding between 50 and 75 people to its 425-strong payroll - and it did not give any sense of where profits might be. But the presumption is that Netezza will be solidly profitable in fiscal 2011 if all goes well. ®

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