Datalink Sees 2010 Earnings Rise Thanks To Storage, Networking Sales

Solution provider Datalink on Thursday reported its best earnings since 2006 and its highest revenue ever in 2010, and predicts even better results during the first quarter of 2011 as customers expand their data center architectures and move towards the cloud.

The Chanhassen, Minn.-based solution provider cited the successful integration of two acquisitions along with an impressive organic growth rate of 33 percent and a focus on best-of-breed solutions as the catalyst for its success in 2010.

Datalink reported revenue for its fourth quarter 2010, which ended December 31, reached $91.0 million, up 76 percent compared to the $51.8 million it reported for the fourth quarter of 2009. The company also reported earnings of $2.4 million, or 19 cents per share, compared to a loss of $158,000, or 1 cent per share, for the same period one year ago.

For all of 2010, Datalink reported revenue of $293.7 million, up 65 percent compared to the $178.1 million the company reported a year ago. Datalink said its earnings for 2010 reached $2.3 million, or 18 cents per share, substantially better than its last year loss of $555,000, or 4 cents per share.

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Datalink reported fourth quarter 2010 product revenue of $59.1 million, up 96 percent over last year, and services revenue of $31.9 million, up 48 percent over last year. Both figures were record quarterly amounts for the company.

During all of 2010, Datalink acquired 272 new customers, compared to 154 new customers in 2009, said Paul Lidsky, Datalink's president and CEO. Lidsky also said Datalink had 55 customers who spent $1 million or more with the company during 2010, up from 29 customers in 2009.

Datalink's storage business during the year rose 79 percent over last year to reach $140 million, while its networking business rose 187 percent to $23 million and its server and compute business rose 300 percent to $16 million, Lidsky.

Such growth, especially in its networking and server and compute businesses, came in large part to two key acquisitions Datalink made in 2009, Lidsky said.

Datalink in October of 2009 acquired the reseller business of Incentra, giving it the opportunity to grow its existing storage business, its Microsoft and Cisco relationships, and a server business.

That same month, Datalink acquired the Cisco-centric networking business of local solution provider Cross Telecom in a bid to gain expertise in converged storage, networking, and data center virtualization. That acquisition enabled it to quickly build a networking practice.

Both acquisitions helped Datalink expand beyond its traditional storage-centric business.

Lidsky said Datalink is continuing to look for potential acquisition candidates that help it expand both its geographical reach and its expertise. More specifically, he said Datalink is interested in expanding to Texas, the Ohio Valley, and from northern Florida to the Carolinas. Potential acquisitions include solution providers in the $30 million to $50 million annual revenue range, but smaller acquisitions to fill in geographical holes are also welcome, he said.

Next: Further Acquisition, Cloud Plans

Datalink plans to do acquisitions no more than every 12 months to 18 months in order to give it time to integrate the new company before starting again, Lidsky said. "We don't want to screw anything up," he said.

With its expanded networking and compute expertise, Datalink sees the cloud, especially private clouds, as a major expansion opportunity.

Lidsky said the company is seeing a lot of its customers build or continue to build private clouds. "But a lot of data center infrastructures are not ready for private clouds," he said. "There's a lot of assessment and deployment to do first."

Cloud computing offers a lot of opportunities to solutions-oriented VARs, Lidsky said. "But if you are a transactional VAR, there are more risks as customers move to the cloud," he said.

Looking forward, Datalink said it expects first quarter 2011 revenue to be between $77 million and $82 million, which would represent significant growth over the $62.5 million it reported for the first quarter of 2010. The company also said it expects first quarter 2011 earnings per share of between 3 cents and 8 cents per share, compared to last year's 7 cents-per-share loss.