Investor's Business Daily
DataDirect: A Little-Known Hollywood Story
Tuesday July 1, 6:16 pm ET
Brian Womack
When Pacific Title & Art Studio put together the movie trailer for "The Dark Knight," the firm needed to easily and quickly cull clips from the upcoming Batman movie.
So it turned to an up-and-comer in the digital storage industry -- DataDirect Networks -- to handle its high-speed demands for scanning a digitally made film.
"DataDirect Networks allows us to have multiple people accessing the data without interruption," said Andy Tran, chief technology officer at Pacific Title. "We have quickly delivered for a lot of clients."
DataDirect Networks has been a rising star in Hollywood, where its storage systems have proved a good fit for the needs of movie studios and others. The company says it also has targeted research labs with high-performance storage needs. Now, the company is targeting new customers such as Internet-based companies that need storage gear that can add capacity quickly, inexpensively and easily.
The company's sales have quadrupled over the past four years, and the once-quiet DataDirect Networks is looking to tell its story to Wall Street with an initial public offering.
Alex Bouzari, co-founder and chief executive of the company, said he'd like to take the company public "in the next six to 12 months," if market conditions cooperate. "We believe we have the right technology today," he said.
Bouzari says an IPO would depend on market conditions. The IPO market, like the stock market, is in the doldrums. And some storage companies have seen their stock prices slide after debuting last year.
Compellent Has Slipped
For example, storage company Compellent Technologies (NYSEArca:CML - News) went public in October at $13.50 and rose immediately to 25. Since then it has drifted down to near 11.
Still, Bouzari is preparing to go public, having hired managers in the past year with experience in running public firms. Two former Hitachi Data Systems (NYSE:HIT - News) executives joined DataDirect this year. Scott Genereux is senior vice president of worldwide sales, and Steven Zivanic is vice president of corporate communications.
The firm's products fit a rising need, says Steve Duplessie, an analyst at Enterprise Strategy Group.
Storage requirements "are changing, and the requirements of the new world order point 18ight to them," Duplessie said.
DataDirect's sales rose to $100 million last year from $25 million in 2003, Bouzari says, while the company maintained double-digit operating profit margins.
"We are on the path to taking it to $500 million," Bouzari said. "That's our goal."
Going public would be a switch for the usually low-key company. DataDirect Networks spent most of the decade establishing itself as a data storage firm, gaining fans in Hollywood and in research labs.
"It has been viewed as a higher-quality niche player," Duplessie said. "If you didn't know about them, you wouldn't find them."
DataDirect Networks' technology offers a fresh take on storing digital bits of information, he says.
Traditional storage systems are great for big databases with many small bits of data that need to be accessed, such as a bank's credit card customer file or loan applications, Duplessie says.
Such systems deal with so-called structured data -- data in a form that computers can easily read.
But DataDirect's products are built to support larger unstructured data, such as video, which can require amounts of data so massive as to have been almost unheard-of just years ago, Duplessie says. And this unstructured data, just like structured data, more and more needs to be accessed quickly and often.
By 2005, Bouzari says he had an "inkling" that DataDirect's products would expand into many markets.
"What used to be fairly nichey has now become much more broader," he said. "And we scale to the extreme."
Social networking Web sites, for example, need storage gear that can expand quickly to handle big media files.
Take Shutterfly (NasdaqGS:SFLY - News), the photo-sharing site. It uses DataDirect storage systems to let customers quickly store and access their photos, Bouzari says. Today it stores roughly 1 billion photos, he says, where just a few years ago it had fewer than 100 million.
Microsoft Studios (NasdaqGS:MSFT - News), a unit of the software company that helps prepare media files for Xbox Live Marketplace, is another DataDirect customer, Bouzari says.
Call It 'Content Depot' Market
According to analyst Richard Villars of research firm IDC, DataDirect is playing in a new and fast-growing part of the storage industry that puts a premium on speed and scalability at an affordable price. Villars calls this the "content depot" market.
He estimates that the traditional storage industry is seeing capacity growth of about 55% a year, but he pegs growth for the content depot market at 110% to 120% a year.
He says the content depot sector makes up about 10% to 15% of overall storage capacity worldwide, and about 5% of revenue. By 2011, he says it could make up 30% of storage capacity and 20% of revenue.
DataDirect isn't alone in targeting this field.
"Everyone is working on it," Duplessie said.
Hewlett-Packard (NYSE:HPQ - News), for example, recently unveiled "extreme storage" offerings that compete in this area. Network Appliance (NasdaqGS:NTAP - News) is in the arena as well.
Storage giant EMC (NYSE:EMC - News) is looking at offering similar products, analysts say, though the company has made no official announcements.
"It's going to be a huge area," said Greg Schulz, an analyst at StorageIO. "That whole space is becoming more and more mainstream."
