VARs: Compellent IPO Means Opportunities

Compellent on Wednesday had its IPO, with prices closing at about $24 per share on its first day, well above the initial pricing of $13.50 per share, giving the company a valuation of about $144 million. By close of the market on Friday, it had given up some of that value, with share prices falling to $18.55.

But the cooling of the share price didn't dampen the enthusiasm its channel partners have for the company, which produces software to automate tiered storage, with such capabilities as thin provisioning, storage virtualization, snapshots, and remote replication.

Sonia St. Charles, CEO of the Davenport Group, a St. Paul, Minn.-based solution provider said she is excited about the IPO. "This gives Compellent more of a brand name," St. Charles said. "There is only upside potential from the IPO because of all the press coverage."

Al Kraling, president of CPU Options, a Brooklyn Park, Minn.-based solution provider and Compellent partner, said the IPO gives Compellent more access to financing, and helps get it better known across the country. "It's a good thing," Kraling said.

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Indeed, that upside is already happening, said Paul Clifford, a principle at the Davenport Group.

"We were on a call with a customer yesterday," Clifford said. "The CIO was interested in Compellent, but the CEO and CFO were having 'heartburn.' So we started talking about the company. We saw the IPO start at $13 (per share), and the price was already in the $20s. The CFO said he read about them in the Wall Street Journal on Monday."

Compellent has some of the most innovative technology in IT today, Clifford said. "My biggest fear is that someone would come along and buy them," he said. "With the IPO, there's less chance of that happening."

Compellent offers an enabling technology, Clifford said. Whereas most vendors offer products that treat storage as an expensive filing cabinet, Compellent's Storage Center software turns storage into a tool.

"Compellent treats storage in terms of intelligent blocks," he said. "Instead of managing disk drives, it manages the blocks. It stripes parity across all the disk drives, writing data as both RAID 5 and RAID 10 on the same spindles. Adds, moves, and changes to data are done with a smile. You can move data, virtual servers, and the entire storage environment to other hardware, even in the middle of the day when everyone is connected."

Compellent has proven to be a very good channel partner, Kraling said. "They're very accommodating," he said. "It's easy to take a customer to (Compellent's) office. The close ration is very high when we go there."

Compellent would not comment on its IPO, citing a 25-day quiet period.

However, from the latest version of its S-1 filing, dated Sept. 21, it is possible to glean some insight to how the company is doing.

As of late August, the company's Storage Center software was in use by over 600 enterprises worldwide. The S-1 did not discuss the number of channel partners the company has, but in early June it did host a summit of over 140 worldwide channel partners, according to a press release from the time. Indirect channels accounts for 100 percent of revenue.

Company revenue is growing strong, reaching $23.3 million in 2006 compared to $9.9 million in 2005, according to the S-1. Revenue in the first six months of this year reached $20.9 million, up from $9.5 million during the same period in 2006. Storage Center and related hardware was its only product. Services accounted for a small percentage of total revenue. International sales accounted for about 11 percent of business in the first half of this year.

However, the growth in revenue has yet to be matched by profits. Compellent lost $4.1 million during the first six months of this year, compared to a loss of $3.4 million during the same period last year. As of June 30, accumulated losses of the company was $45.7 million, according to the S-1.

Among the risks listed in the S-1 to Compellent is the fact that, since it started shipping products in February of 2004, the company has not had a single profitable quarter, and it expects to make "significant expenditures" related to R&D and sales and marketing.

Another risk is the fact that it is a small player facing competition from such SAN vendors as Dell, EMC, Hewlett-Packard, Hitachi Data Systems, IBM, and Network Appliance, as well as larger tier-two vendors as 3PAR, EqualLogic, and Xiotech. And some of those vendors, including EMC and NetApp, have made acquisitions that enable them to compete more directly with Compellent.

Compellent also faces the risk of depending on a single product for its revenue, and on depending on a small number of channel partners for sale, the S-1 said.

"For the six months ended June 30, 2006 and 2007, our top ten channel partners accounted for 58 percent and 53 percent of our revenue, respectively," Compellent executives wrote in the S-1. " We anticipate that we will continue to be dependent upon a limited number of channel partners for a significant portion of our revenue for the foreseeable future. . . . The loss of one or more key channel partners or a reduction in sales through any major channel partner would reduce our revenue."

Any problems with its channel partners could also be a risk for Compellent.

"We anticipate that we will continue to be dependent upon a limited number of channel partners for a significant portion of our revenue for the foreseeable future and, in some cases, a portion of our revenue attributable to individual channel partners may increase in the future," company executives said in the S-1. "The loss of one or more key channel partners or a reduction in sales through any major channel partner would reduce our revenue."

Compellent also maintains a low inventory of hardware components, enough for repairs and evaluation and demonstrations, and so a problem in its supply channel could impact business, according to the S-1. The company works with Bell Microproducts to supply it with custom controllers produced by Supermicro Computer, as well as Xyratex for its storage enclosures and Seagate for hard drives.

Compellent has been talking about IPO possibilities since September, when it received its latest round of venture capital funding of $15 million.