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Veritas says SANs are still experimental

Veritas CEO Gary Bloom reveals the secret to his company's upbeat second-quarter earnings. The company has kept on top of the need for utilization software, despite the lure of sexy technologies like SANs.

Despite the amount of publicity the storage area network (SAN) phenomenon has attracted over the last couple of years, businesses are still predominantly at an experimental stage in terms of adoption, according to Veritas Software CEO Gary Bloom. That said, the storage software giant isn't downbeat; it believes the need for software that helps increase the utilization of an organization's storage hardware has never been greater, a fact reflected in its relatively upbeat second-quarter earnings.

Bloom said the technical challenge of integrating both network and storage infrastructures in the form of a SAN is currently leading to experimental implementations, where businesses configure just a small piece of their storage architecture as a SAN. He stressed, however, that SANs are on a normal adoption curve for a new technology, and was not unduly concerned about slow adoption.

Meanwhile, Veritas has plenty of meat-and-potatoes products to rely on before SAN spending starts to kick in, and Bloom highlighted that the transition of storage value from hardware to software continues to keep the vendor at the top of the storage heap in these tough times.

More specifically, Veritas contends companies don't want to buy any more storage hardware and are instead looking to software that helps them use what they have more efficiently in order to keep costs under control. Analysts' estimates of storage utilization rates vary, but some put it as low as 35%, with most agreeing that it is currently under 50%. Bloom said Veritas' software could help increase this to 60-70%, or even over 90% in a SAN configuration.

That's the main reason why Veritas continues to shine in a sector that it experiencing what the doldrums feel like for the first time, said Bloom. Although the company lowered its guidance for the year, and now expects revenue growth in the 25-35% range rather than the previously lowered 35-50%, most investment analysts are happy that Veritas is well positioned in a tough market, poised to achieve even greater things whenever the economy decides to pick up. For the second quarter, Veritas recorded revenue of $390.1m, with operating earnings per share of $0.19, right on the nose of consensus estimates.

Aside from the increased urgency among companies to spend more on storage software, Bloom highlighted greater penetration of key accounts, strong growth in government business, a healthy replacement level of competitors Computer Associates and Legato, and strong growth of "strategic" consulting as additional plus points. Challenges continue to be the postponement of deals (although not their cancellation, thus far), reduced order size, a fall in OEM revenues due to sluggish server sales at the major vendors, and lower sales to dotcoms and various kinds of service providers.

Veritas' international performance continues to be a double-edged sword. Although analysts patted the company on the back for increasing international revenue by 67% from the year-ago period, to $110m, some cautioned that the US economic malaise might spread to Europe before the US recovers. That said, Bloom was confident that Europe in particular looks strong, because companies there are beginning to adopt products other than backup and restore, such as clustering, replication and SAN management.

Even so, the fact that Veritas revised guidance for the year two weeks into the third quarter -- historically the weakest internationally as Europe goes on holiday -- suggests the company is seeing no letup in the spending environment.

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