LGTO.....Legato Systems (LGTO-NNM)
by L.H. Friend Weinress Frankson & Presson (28 57/64, Jan. 20)
Reported a shocking revenue and earnings shortfall for its fourth quarter 1999, and restated its
third-quarter '99 revenues and earnings. Its annual audit revealed three contracts that ultimately were
removed from license-fee-revenue recognition to reseller-revenue recognition. This embarrassed an
already conservative management team. We believe its underlying business and industry growth trends
remain strong, maintain our Strong Buy rating and have established a new $40 target price.
Storagenetworks is a client of Legato's.............Storagenetworks stows big
money for big plans
By Matthew A. DeBellis
Redherring.com
January 28, 2000
It's a good thing 18-month-old Storagenetworks fell
into $103 million in a third round of venture financing
this week, bringing its total VC bounty to $205 million.
The company plans to spend $700 million to build its
"global data storage network" over the next four years.
The third-round investors were
computer retailer Dell Computer
(Nasdaq: DELL),
telecommunications firm Global
Crossing (Nasdaq: GBLX), and
Exodus Communications
(Nasdaq: EXDS), a provider of
data centers.
Storagenetworks is doing
business in what's dubbed the
"storage service provider" market,
where third-party companies
maintain, back up, and recover
data as an off-site service on a
subscription basis. A $21 billion
business last year, the storage
service provider market will reach
$24 billion this year and $40
billion in 2003, according to
market researcher IDC.
ITS DAY WILL COME
Despite the paltry numbers for the storage services
market, analysts say the business of outsourcing data
management will grow during the next few years as
more companies become comfortable with outside
experts maintaining their data. Some of the world's
largest technology and telecommunications companies
are entering the business.
Thursday AT&T (NYSE: T) teamed with Cisco
Systems (Nasdaq: CSCO), Hewlett-Packard (NYSE:
HWP), IBM (NYSE: IBM), Sun Microsystems
(Nasdaq: SUNW), and EMC (NYSE: EMC), which
makes data storage and retrieval technology, to
develop network services primarily for application
service providers (ASPs), which host software
applications. Storagenetworks seems to have come
out a winner in this big partnership, because AT&T's
plan calls for Storagenetworks to provide storage
services at some of AT&T's selected data centers.
Last September Qwest Communications (Nasdaq:
QWST) partnered with HP to offer similar services.
Besides plans by industry behemoths to encroach on
Storagenetworks's territory, several startups are
quietly preparing to launch competing services.
"Storagenetworks is out plowing a green field, and
right now there isn't anybody else in the field," says
John Webster, an analyst at Illuminata, a market
research firm. "But that won't last for long. Some more
serious competitors could appear in a heartbeat."
IN PERSPECTIVE
Two hundred million dollars is a lot of dough, but not
nearly enough for the Waltham, Massachusetts-based
company to build a $700 million global data storage
network. Cofounder and CEO Peter Bell was cagey
when it came to talk about a next round of funding or a
public offering.
Storagenetworks is an attractive takeover target
because it was first to market with a focused data
management business, says Steve Duplessie, a senior
analyst at market researcher Enterprise Storage
Group. Telecommunications outfits such as Global
Crossing and Qwest may be interested in
Storagenetworks, as might computer hardware makers
Compaq Computer (NYSE: CPQ), Dell, HP, IBM,
and EMC, analysts say.
While analysts speculate, Storagenetworks continues
to open more data centers. Next week it opens a
London center, a part of its plan to increase the
number of locations from 14 to 60 by year's end, Mr.
Bell says. A Frankfurt, Germany, center will open by
this March, followed by Tokyo and Singapore centers
this fall.
So far, 85 customers pay an average of $40,000 per
month for Storagenetworks's service, says Mr. Bell.
According to analysts, companies most interested in
Storagenetworks's service are ASPs and Internet
service providers (ISPs). It's harder to persuade
Fortune 500 firms that their data is better handled by
someone other than themselves, they say. |
