Datalink Watches Revenue Grow As It Shifts From Storage Focus

Datalink, Chanhassen, Minn., has managed to take advantage of its acquisitions of Incentra and of the networking business of a smaller solution provider to start a push into the server and networking business.

Datalink on Wednesday reported revenue for its second quarter 2010, which ended June 30, of $70.9 million, up 62 percent over the $43.7 million it reported during the second quarter of 2009.

Datalink also reported earnings of $5,000, or essentially break-even, on a per-share basis, compared to earnings of $283,000, or 2 cents per share, it reported a year ago.

Part of the increase in revenue came from its acquisition late last year of the reseller business of Incentra. However, said Gregory Barnum, vice president of administration and CFO, the company's legacy business still grew about 20 percent over last year. "As we move beyond the acquisition, it gets fuzzy trying to separate who sells what," Barnum said.

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That acquisition came just days after Datalink acquired the Cisco-centric networking business of Bloomington, Minn.-based Cross Telecom for $2 million in a bid to prepare for the industry move towards data center virtualization and the convergence of storage and IP networks.

Product revenue in the second quarter was up 92 percent and services revenue was up 29 percent over the same period last year. Barnum called the huge growth in product revenue good news as it will lead to increased services business in the future.

Product margins were about 22.5 percent during the second quarter of 2010, up from 21.8 percent last year, while services margins have been in the 27 percent to 30 percent range, Barnum said.

About 38 percent of Datalink's revenue came from sales of disk-related products, compared to 4 percent from tape, 6 percent from software, 7 percent from networking, 7 percent from servers, and 38 percent from services.

Next: Growing Its Server And Networking Business

The server and networking revenue both have increased substantially since the acquisition of Incentra, and reflect Datalink's transformation from a storage solution provider to a provider of data center infrastructure and services, said Datalink President and CEO Paul Lidsky.

Datalink has seen a gradual uptick in customer spending this year as evidenced in an increase in its business pipeline and a doubling in the number of deals valued over $500,000 compared to last year, Lidsky said.

Growth should continue as Datalink continues to expand beyond its traditional storage focus, Lidsky said.

He said Datalink will consider itself successful if it finishes 2010 with over $10 million in networking business, as it will show the company is moving in the right direction. "We have modest designs on server and networking this year because of the heavy lifting needed to get started," he said.

Looking forward, Datalink expects revenue of between $68 million and $72 million during the third quarter, with earnings per share expected to be between a loss of 1 cent per share and a profit of 3 cents per share. This compares to the $42.7 million in revenue and the loss of 1 cent per share it reported in the third quarter of 2009.