Converged Infrastructure, Virtualized Data Center Business Drive Datalink's 2Q Revenue, Earnings

Midrange storage and converged infrastructure solution provider Datalink on Thursday reported solid revenue and earnings growth over last year thanks to all-around growth in product and services sales.

A record level of professional services sales for the company, as well as a growing business in converged infrastructure and virtualized data centers, were key factors in driving both revenue and profit growth, the company said.

Eden Prairie, Minn.-based Datalink is one of the few midrange solution providers to be publicly listed, forcing it to open its kimono every three months and provide at least a small glimpse at how well the IT channel is doing.

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For its second fiscal quarter 2012, which ended June 30, Datalink reported total revenue of $120.0 million, a big 34-percent increase over the $89.5 million the company recorded for the second quarter of 2011.

Datalink also reported earnings of $3.2 million, or 18 cents per share, up from the $2.7 million, or 16 cents per share, it reported last year.

The revenue and earnings growth included the results of operations from its acquisition in October of Midwave.

Product sales for the second quarter accounted for about 64 percent of revenue, or about $77.3 million, up from $56.5 million last year. Customer services revenue in the quarter was $33.5 million, up from $28.4 million last year, while professional services revenue hit $9.2 million compared to last year's $4.6 million, Datalink reported.

About 36 percent of Datalink's total revenue came from services, 36 percent from storage sales, 18 percent from networking and server sales, 8 percent from software sales, and 2 percent from tape sales.

While Datalink enjoyed a 34-percent growth in revenue over last year, the quarter's revenue total was below previous guidance, said Paul Lidsky, Datalink's president and CEO, during the company's financial analyst call.

The lower-than-expected revenue resulted from a lengthening of the sales cycle, and not from a drop in large projects, Lidsky said.

"Sales cycles are lengthening because we are selling larger projects, which require a longer time," he said.

Customer demands for modernizing their data centers has not abated, Lidsky said. "It is simply taking longer," he said.

NEXT: Converged Infrastructure, Virtualized Data Center Sales Growing

Datalink sold 24 virtualized data center projects during the second quarter which equated to revenue of $21.7 million, which is up from 17 deals worth $16.6 million in the first quarter of the year, Lidsky said.

These resulted from strong partnerships with Cisco and NetApp on their jointly-developed FlexPod converged infrastructure architecture, as well as a strong partnership with EMC on its newly-unveiled VSPEX reference architecture, Lidsky said.

Datalink was the first North American solution provider to get the FlexPod Premium Partner status, and was one of the first in the world to be certified by EMC for VSPEX, he said.

Lidsky also said that revenue from selling Cisco server and networking products rose 11 percent during the quarter over last year, while EMC-related revenue rose 66 percent over the same period.

"Both our Cisco and EMC partnerships are playing an increasing role in our data center business," he said.

During the question and answer period of the financial analyst call, Lidsky was asked to give his view on the impact of VMware's planned $1.2 billion acquisition of Nicira, a leading developer of virtualized networking technology, on traditional networking vendors such as Cisco.

"I think VMware's ability to play nicely with Cisco will continue. (The relationship) is not about to come apart any time soon," he replied.

Lidsky also said that the industry is carefully studying the acquisition and its possible impact. "And I don't think any of us will have a bead on this until later in the quarter," he said.

Lidsky, in response to questions about future business at Datalink, said the company is planning to hire between five and ten new account executives and about a half-dozen field engineers by year-end as part of its growth engine for 2013. About 170 of the company's 380 employees are engineers, and about are sales staff.

Lidsky also said that Datalink does not compete on price, but instead grows its business by growing its portfolio as a way to stay away from pricing battles.

Looking forward, Datalink said it expects revenue in the third quarter of 2012 to be between $117 and $122 million, up 30 percent to 35 percent over the $90.2 million it reported in the third quarter of 2011. The company also expects earnings of 16 cents to 21 cents per share, up from 16 cents per share last year.

PUBLISHED JULY 26