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Storage system vendor 3PAR completes IPO

3PAR continues string of storage IPOs over past two years, and BlueArc is already on deck to follow.

Storage system vendor 3PARdata Inc. became the latest storage vendor to go public today when it began trading shares at $14 above its target range laid out last week.

3PAR set a target price of between $11 and $13 two weeks ago. The SAN vendor's initial public offering (IPO) comes less than six weeks after Compellent Technologies also took the plunge and less than two weeks after Dell Inc. removed EqualLogic Inc. from the IPO queue by acquiring the iSCSI SAN maker for $1.4 billion. .

Even with EqualLogic's aborted IPO, there is no shortage of storage systems vendors going public. Clustered storage startup Isilon Systems Inc. completed its IPO late last year, and NAS vendor BlueArc has already filed for an IPO that it might complete by the end of the year.

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3PAR offered 7.5 million shares at $14, expecting to raise around $105 million. Its share price rose to $15.75 by the close of its first day of trading despite the fact that3PAR has yet to turn a profit . According to filings with the Securities and Exchange Commission (SEC), 3PAR lost $16.3 million in fiscal 2006, $15.5 million in fiscal 2007 and $7 million in the first six months of its current fiscal year, despite growing revenues significantly each year.

3PAR sells its InServ Storage Server mostly to enterprises where it competes primarily with EMC Corp., Hitachi Data Systems (HDS) and IBM. It did release midrange systems last year, although they serve mostly in departments or remote sites of 3PAR enterprise customers.

3PAR bills itself as a utility storage vendor and carved a place in the market with thin provisioning, which lets customers allocate space as they need it. Thin provisioning dedicates storage capacity to a volume only when an application writes to that volume. A flood of storage vendors have since added thin provisioning to their systems, most recently HDS.

3PAR is going public as technology executives worry about the market because of a slowdown in spending in the financial services area, traditionally a strong vertical market for storage companies. Network Appliance Inc. (NetApp) CEO Dan Warmenhoven became the latest to admit softness in sales to financial services firms during NetApp's earnings report this week. But while 3PAR has large financial services customers, it also relies heavily on sales to Internet companies and government agencies. 3PAR claims more than 200 customers, including MySpace, Priceline, the FBI, Dow Jones and Credit Suise, one of the bankers for the 3PAR IPO along with Goldman Sachs.

3PAR's IPO price was slightly above the $13.50 price that Compellent priced shares when it went public Oct. 10. Compellent's share rose to $24 by the end of the first day of trading but was down to $15.40 at the close of market Thursday.

3PAR's $66.2 million in revenue for 2007 was about three times as much as Compellent's $23.3 revenue for last year, and its revenues in recent quarters have been roughly twice as much as Compellent's. For instance, 3PAR reported around $26 million for the quarter that ended in September. Compellent this week recorded revenue of $13.4 million for the quarter. However, Compellent's losses of $2 million were smaller than 3PAR's $2.3 million loss for the quarter, and Compellent executives said they expect the company to be profitable by the second half of next year.

Analysts agree with Dell that EqualLogic would have been the plum of the storage IPO crop this year.

"I think EqualLogic could have been one of the better IPOs we've seen in a long time. Not quite as good as VMware, but one of the better ones recently," said StorageIO Group analyst Greg Schulz. As for 3PAR, he added, "They've demonstrated they can sustain themselves as an actual business rather than just prop themselves up for an acquisition like some companies that file for IPOs."

A financial analyst, who asked not to be named, agreed that EqualLogic would have been the best of the recent storage IPOs. "The other companies are all features within an array, not full-fledged storage solutions," he said. "I don't think any of the others will be big storage systems vendors. Either they will perish or limp along as small vendors."

Other storage companies that have gone public since late 2006 include Riverbed Technology Inc., CommVault, Data Domain and Double-Take Software Inc.

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