Storage VAR Datalink Reports Q1 Revenue Increase, Sees Growth In Q2

However, the company said that its products and services revenue mix, combined with plans to embrace Cisco's UCS data center strategy, will lead to increased growth going forward.

Datalink reported that revenue for its first quarter, which ended March 31, 2010, hit $62.5 million, up about 57 percent over the $39.9 million the company reported for the prior-year period.

That figure included product revenue of $38.2 million, up about 98 percent over last year, and services revenue of $24.4 million, up about 18 percent year over year.

The growth included new revenue from Datalink's acquisition of the reseller business of Incentra last Fall. Without that acquisition, revenue would still have grown, by roughly 20 percent, said Greg Barnum, Datalink's vice president of finance and CFO.

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Datalink also reported a loss of $891,000, or 7 cents per share, for the first quarter, up from a loss of $596,000, or 5 cents per share, in the first quarter of 2009.

Datalink's revenue mix leaned heavily on products compared to services, Barnum said. Services accounted for about 39 percent of revenue in the quarter, compared to 39 percent coming from disk-based storage, 4 percent from tape storage, 4 percent from software, 7 percent from networking, and 7 percent from servers.

Product margins for Datalink are running between 20 percent and 22 percent, compared to 26.9 percent margins for services in the first quarter, down slightly from 27.1 percent in the fourth quarter of 2009, Barnum said.

That product-services mix is one that Datalink likes to see, said Paul Lidsky, Datalink's president and CEO.

Lidsky said that a 60-40-percent revenue mix of products to services, or at the lowest a 55-45-percent mix, is just right for future growth.

"In order to grow services revenue, we need to sell products to get the maintenance," he said. "When that [mix] flips around, that growth slows."

Datalink has been investing in getting ready for future growth to come from customers looking at new ways to build their data center infrastructures.

The company, which in November acquired the networking business of Cross Telecom to prepare for the convergence of storage and IP networks and data center virtualization, recently completed the Cisco Data Center Unified Computing Authorized Technology Partner (UCS ATP) program and the Gold Certification audit.

The ability to work with Cisco's UCS strategy, which combines storage, server, and networking technologies into a single blade-based architecture, will eventually be an important driver of growth for Datalink, Lidsky said.

Cisco has yet to start delivering on its UCS strategy, although it is expected to start picking up by late 2010, Lidsky said.

However, when that happens, Lidsky said, Cisco will be successful, based on the amount of interest Datalink is seeing from its customers.

"It's the right thing to do for Datalink," he said. "It's forward thinking for us. But I don't think it will be a significant business for us this year, or maybe it will starting in the fourth quarter of 2010."

Datalink ended the first quarter of 2010 with a backlog of $43.4 million.

Based on that backlog and the current business environment, the company expects revenue of $68 million to $72 million for the second quarter of 2010, up from the 43.7 million it reported during the same period last year. It also expects the second quarter 2010 results to be between a loss of 2 cents and an earnings of 2 cents per share, compared to earnings of 2 cents per share last year.