Stumbling to a big success

You can't please all the people all the time.  Earlier today Chris Mellor at the Register wrote "3PAR stumbles in 4th quarter". 

As in

Skinning our knees with a 37% increase in sales compared to our 4th qtr last year.

Stubbing our toes en-route to a 57% increase in sales for fiscal year 2009 over 2008.  

The thing that some people didn't like was that we posted a small loss.  That's because we're ramping up in engineering and sales to be able to continue growing.  It's hard being a growth company in a recession, but somebody's got to do it. 

So how do we compare with the results of other infrastructure companies that have been announced recently?

VMware sales for Q1 2009 were up 7%

Cisco sales were down 17%  (beating expectations)

EMC sales were down 9%

Microsoft sales were down 6%

So, we're very happy with what we've done and what we plan to continue doing - without headcount reductions or pay cuts. 

Comments

[Gershon Babula]

with all due respect to your sales growth, it's very easy for someone to read the financial statements and assume you guys are achieving this by selling $100 bills for $99. I'm not saying that's how it is mind you - your explanation of r&d investment for the future is just as plausible. but sales are easy. profits are where the beef it at.

[marc farley]

Hi Gershon, thanks for commenting. I like the old joke about the business that loses a small amount on each each sale but then tries to make it up on volume.

The economic cycles in this decade have posed difficult challenges for everybody, including the IT industry where, as you indicate, sales have historically been easy. But I don't think they have been very easy over the last year or so, which is why I listed sales results for some of the companies we work with or compete against in our ecosystem. Who knows how much longer slow economic conditions will continue? We all have our hopes, but there is great uncertainty in all of this.

3PAR's approach, from the company's inception, has been much more about business value than about technology. We have a value proposition that resonates with customers, which is the main reason why our sales have risen during the market's slide. Doing more with less is not simply marketing rhetoric at 3PAR, its our business philosophy. Our technology is considerably different than what anybody else has - not because we are trying to create new technology - but because we are creating business value.

We did not pioneer thin provisioning, but we designed a system built around the concept of thin provisioning and we have been very successful with it. Today, everybody needs to have thin provisioning in their products in order to compete in this business. This has worked out very well for us because as customers have grown comfortable with their knowledge and trust in thin provisioning, they now compare the implementations of different vendors and 3PAR usually wins those comparisons.

Some people try to give us a lot of heat for not having flash SSDs yet. Our business-value approach has everything to do with why we don't. Today, SSDs are simply a technology innovation, but not much of a business-changing innovation, and that's why they are not driving sales volumes yet. We don't think using SSDs as LUNs is much of a business changer because the cost is too high, but we are looking very carefully at what the business changing aspects of flash SSDs will be. Simply saying that you will move data between rotating and flash devices does not mean that you will be able to turn that capability into business value. There will be significant differences in how this type of functionality works.

The storage industry is very tough because the market demands a high level of competency and capabilities. Most storage startups don't make it or give up along the way and sell out. 3PAR has been at this now for 10 years and has made steady progress. We are working very hard on delivering new breakthroughs in business value, but these types of innovation don't come cheap - and that's what our re-investment is mostly about. (expanding engineering and sales primarily)

[robcommins]

Gershon,

Another way to analyze companies in our industry is with gross margin. Here is a comment from David Scott, 3PAR's CEO, regarding gross margins on the earnings call this week:

"We maintained excellent gross margins in fiscal Q4 at 65% slightly above our full year gross margin performance of 64.9%. It is encouraging that we have been able to maintain gross margin at this level during various stress times by delivering demonstrable value to our customers."

The full transcript of the call is here: http://twurl.nl/541svn

-Rob (3PAR employee responsible for watching product gross margins)