De-Dupe Drives Data Domain Growth

Buoyed by strong sales of its inline de-dupe offerings, Data Domain reported solid Q2 revenues last night posted revenues of $61.2 million, a 131 percent increase on the prior year, above analyst estimates of $58.2 million.

Data Domains earnings were 3 cents per share on net income of $1.7 million, compared to a loss of 12 cents per share and a net loss of $1.2 million in the same period last year.

On a non-GAAP basis, the vendor reported earnings of 10 cents per share on net income of $6.5 million, up from 9 cents per share and $900,000 in the second quarter of 2007. Analysts had estimated earnings of 1 cent.

Data Domain also raised its 2008 revenue guidance to between $250 million and $255 million, from its initial range between $225 million and $235 million.

“New customer adoption of our technology is continuing at a record pace -- this time last year we reported that we had passed 1,000 customers; we’re now more than double that mark,” said Frank Slootman, the Data Domain CEO, during a conference call last night. “We noted particular strength in the eastern U.S. and the financial services vertical.”Despite ongoing concerns about the economy, Slootman has not seen the spending slowdown experienced by some other storage vendors.

“We did not see a fundamental change in spending patterns in our sector from the prior quarter,” said the CEO, explaining that the vendor added 344 new customers in the quarter, compared to 285 in Q1.

“Data domain continues to post impressive top-line growth, which we expect to persist for the foreseeable future,” said Jayson Noland, an analyst at RW Baird, in a note released this morning. “Q2 trends show continued strength as the company added 344 new customers and noted significant traction in the financial services vertical.”

The analyst also highlighted the strong performance from the vendor’s recently launched DD690high-end appliance, something frequently discussed during last night’s call.

"Every time we come out with a bigger, faster product, it increases the addressable market for our product [and] it gets us involved in much larger opportunities,” said Slootman.The exec also touched on Data Domain’s roadmap, explaining that the vendor is already planning a bulked-up version of DD690. “That will take the performance and scale game to a completely new level, but we’re not totally prepared to discuss how.”

The vendor is also looking at Solid State Disk (SSD) technology, according to the CEO.

"This is an area of enquiry and research for us [but] we’re not in a position to make statements on that technology yet,” he said.

The CEO was also grilled on the competitive landscape, which has seen a flurry of recent activity, with HP jumping into the de-dupe market, and IBM acquiring Diligent for a rumored $200 million.

"The competitive line-up hasn’t changed that much -- it’s EMC in about half or better of the transactions we contest, after that, it’s a mixture of NetApp and Quantum,” replied Slootman. “In terms of HP and IBM, we never saw those people that much, and don’t expect to see them that much -- they sort of have their own customers and their own channels.”Data Domain is nonetheless planning to grow its sales force by about fifty people a quarter, up from its current sales headcount of 324.

“At the end of the day, storage is a ground war, and it has to be fought on the ground, and without people in the sales organization it can’t be done,” said Slootman, in response to a question from an analyst. “We have to get out in front of customers with new products.”

EMC is another vendor experiencing strong demand for its de-dupe offerings, describing “triple digit growth” for its Avamar products during its own Q2 results earlier this week.

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