Virtualized Data Center, Services Strength Drive VAR Datalink's Growth

A growing demand for virtualized data center infrastructures drove revenue for midrange solution provider Datalink to record levels in the first quarter of 2013, the company reported Monday.

That demand helped drive Datalink's Cisco business, and with it strong growth in its services, even as sales of many of its other products, particularly storage, softened during the quarter.

Eden Prairie, Minn.-based Datalink, one of the few publicly listed midrange solution providers, reported revenue for its first quarter, which ended March 31, of $133.6 million, up 12 percent over the $119.1 million the company reported for the first quarter of 2012 and a record for any first quarter the company has reported.

[Related: VAR Datalink Acquires StraTech, Expands Eastern U.S. Footprint ]

On a GAAP basis, the company reported earnings of $1.1 million, or 6 cents per share, about half the earnings of the same period last year. Non-GAAP earnings for the quarter were $3.2 million or 18 cents per share, up from last year's $2.9 million, or 17 cents per share.

The results included operations from Datalink's acquisition of Strategic Technologies (StraTech), which gave the company a solid East Coast presence.

Cisco was a big part of Datalink's growth, said company President and CEO Paul Lidsky.

Datalink's Cisco product and services sales rose 64 percent over last year, Lidsky said. "Cisco servers and networking are part of every data center solution we sell," he said.

Datalink in the first quarter signed 24 virtualized data center contracts, with an average revenue per order of about $900,000, Lidsky said.

"It shows we are doing a good job of moving from siloed storage infrastructures and moving to unified data center solutions," he said.

Focusing on Cisco and unified data center solutions has helped Datalink differentiate itself from its competition, Lidsky said in response to an analyst question during the question-and-answer period of Monday's financial conference call.

Customers don't buy Cisco unified computing by itself, but instead buy solutions, which helps eliminate competition on a price basis, he said. "This has protected the pricing, and added business opportunities," he said.

Most of Datalink's virtualized data center solutions are centered on one of two converged infrastructure solutions, either FlexPod, the Cisco-NetApp joint reference architecture, or VSPEX, the Cisco-EMC joint reference architecture, Lidsky said.

NEXT: Cashing In On A Growing Services Business

The company is also in discussions with VCE, the EMC-Cisco-VMware joint venture developer of Vblock converged infrastructures, and is likely to sign a contract once it works out the services opportunities, Datalink's Lidsky said.

But for now, moving customers to a reference architecture is easier than convincing them to implement a pre-built Vblock solution, he said. "Customers often want to migrate to unified data centers using existing infrastructures," he said. "And so they don't want to buy a pre-packaged solution at this point."

The other bright spot in Datalink's business is services. Datalink's managed services business rose 240 percent over last year, while its OneCall support services, which give customers the ability to contact Datalink for support on solutions consisting of multivendor products, grew 37 percent. Both these services offer Datalink recurring revenue opportunities, Lidsky said.

Services, particularly managed services, will continue to grow in the future as customers continue to essentially remain understaffed in their IT departments, Lidsky said.

"We have gained momentum at many customers by convincing them to [use our services] to let them focus on their business needs. ... We think that's going to continue because there's no sense from any of our enterprise customers that they intend to grow their IT capabilities."

Looking ahead, Datalink expects second-quarter revenue of $134 million to $153 million, up 19 percent to 27 percent over the $120 million it reported last year. The company expects GAAP earnings per share of between 9 cents and 15 cents compared to 18 cents last year, and non-GAAP earnings per share of 22 cents to 28 cents compared to last year's 23 cents.

PUBLISHED APRIL 29, 2013