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 (MSFT), 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 its SANs constantly monitor the data that is stored on the disks. Based on usage, a Compellent SAN will move the most frequently accessed data to faster disks in the SAN. Conversely, it will move less frequently 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 independent 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 its award winning technology and more customers buy its 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 which although tiny, has superior technology that gives it a significant competitive advantage over its piers. Don't be surprised if one of the larger players in the SAN market decides that it would like to own Compellent's technology for itself one day and makes an offer for the company.

Disclosure: None.

Comments

[Shiv Kapoor:]

I like Compellent too; only thing that makes me queasy is that the time might not be right for small caps just yet - but certainly well worth keeping an eye on both VMW & CML for later.

And also like the view of storage being a very important investment in advance of virtualization. In fact when Dell acquired EqualLogic, I began to believe the company was headed in the right direction with its turn-around.

2008 Sep 24 07:44 AM

[User 271171:]

Compellent is a software company. They use Xyratex as their platfrorm. If you want performance you do it in hardware and ASICs, ie. HDS and EMC. Those two powerhouses will blow Compellent out of the water when it comes to performance. Regarding features, yes, they have some nice features for the midrange, but A) HDS and EMC have already caught up and B) hardly any SMB is going to actually get any use of all these features they tout.

2008 Sep 27 01:34 AM