Offering cheaper platforms will please customers looking to scale-up their data warehouses, but it also seems to be affecting Teradata’s revenue growth.
By Madan Sheina
17 Nov 2008
Operating against a headwind of economic slowdown, data warehousing vendor Teradata managed to double its profits but saw its revenue flatten in its recently reported third quarter. The US-based company has also toned down its expectations for the fiscal year, citing a weakening economy and unfavorable currency translations. Teradata – for many the last word in high-end data warehousing – is certainly more cost conscious these days and has broadened its portfolio with new appliance-modelled platforms that address a variety of needs and budgets. Offering cheaper platforms will please customers looking to scale-up their data warehouses, but it also seems to be affecting Teradata’s revenue growth.
Teradata margins look good but struggling with product growth
While the company managed to post strong third-quarter earnings, to the tune of $60 million (more than double that of the same quarter a year ago), revenues were flat at $439 million.
While services (maintenance) continues to provide a steady recurring revenue stream, product sales (a key indicator of organic growth) declined 8% in the quarter to $213 million. Teradata’s strongest market, the Americas, returned modest growth of 3 per cent while its EMEA business dipped 9 per cent in the quarter.
Teradata also slashed its growth projections for the fiscal year to a lower range – from 5-8 per cent to 1-4 per cent. Soft revenue projections might come into play. The other reason is a strengthening of the US dollar. Teradata’s business has a broad geographic spread; any strengthening of its home (US dollar) currency will reduce the value of overseas revenue when repatriated.
Teradata is broadening and scaling its platform family cost-consciously
The increased warehousing of more and new types of data continues to fuel Teradata’s business. At the current rate Teradata may have to consider changing its name to “Petadata”. While the industry has been talking up petabyte-class data warehousing for several years, it’s only recently that we’ve started to see scale of this magnitude. One Teradata customer that recently upgraded its platform is eBay – Teradata’s largest data warehouse environment, at 5 petabytes.
While data size has never been an issue with Teradata, cost has. Reconciling the two has taken time and reflects an evolving portfolio of purpose-built appliance-like platforms that fit many data warehousing needs and pockets.
At the high-end Teradata now offers an “extreme” appliance – the imaginatively named 1550 – that scales up to a mammoth 50 petabytes, yet lists for a price of $16,000 per terabyte. That’s not cheap, but neither will it give customers sticker-shock. A 50 petabyte capacity will be overkill for many. But Teradata is anticipating the needs of its largest customers. For example, telcos are collecting massive amounts of call detail record data, retailers have basket data, e-businesses web log data, and satellite and communications firms set-box data.
For the “low-end of the high end”, Teradata also offers the 1550 appliance – aimed at entry-level data warehousing and analytic sandboxing – which has seen good momentum since its release in April 2008.
Teradata’s high-end customer base is starting to feel the economic pinch
Teradata’s financials were always going to be watched closely after it split from its parent firm NCR. But we believe that it is the company’s customers that should be scrutinised, especially in the current economic climate.
In spite of downsizing its pricing and product line, much of Teradata’s business is still tied to large companies that are assumed to have deep enough pockets or sufficiently large credit lines available to them to afford (or upgrade) high-end IT systems.
The financial services sector is a big market for Teradata. In the third quarter (and year to date) the banking sector returned the highest growth across all regions. Nine of the top ten banks in the world now use Teradata. The company notched up some impressive wins in the quarter, notably HSBC in Europe. But it is in this sector where the company is perhaps most exposed to credit market issues. Every new consolidation of banks and financial services institutions means one less potential customer for Teradata.
Retail is another key area for Teradata – in the third quarter it scored a big win at European giant Carrefour. However, with consumer spending starting to be affected by credit issues, how many of these retailers are looking to expand their Teradata systems or scale back? That decision is sure to impact Teradata’s product revenue in the near term at least.
Madan Sheina is principal analyst within Ovum's Software Applications group and is based in Northern California.
