Robert and Thread- Speaking of Veritas valuation, here's a lengthy excerpt from an in-depth overview of the company. It's not dated, but some of you SEG/VRTS experts can probably date it from Lonchar's comments. -MikeM(From Florida)
PS Found the date. It's February 14th and I don't believe I've seen it on this thread.
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Veritas Software Corp.CFO sees storage becoming more mission-critical
KENNETH LONCHAR is CFO of Veritas Software Corp.
TWST: Let's start out by your giving us a brief overview of Veritas Software Corporation (Nasdaq:VRTS).
Mr. Lonchar: The company is the number one company of very large storage management software space. Analysts for 2000 have us at just over $1 billion in revenue and growing about 50% per year, and we're comfortable with both of those estimates. Today we have about 3,000 employees and we're looking at ending the year we just began with over 4,500 employees. We've also made a commitment of spending $2.3 billion on R&D over the next five years.
The company's strategy is in the area of providing storage management with a focus on data availability. With that, about 10 years ago we started developing operating system components: a journalizing file system for Unix, a logical volume manager for Unix. Those products were adopted and embedded in various operating systems such as Solaris from Sun, HPUX, NT, DEC Unix, and a variety of other flavors of Unix.
Eventually our operating system products became a defacto industry standard without any merchant market competition. In 1997 the company took that operating system technology and merged it with the technology that came from OpenVision, which was a company that we merged with in 1997. OpenVision brought application products to into the fold. These products included a backup product, an HSM product, and this really changed the way people look at doing storage management. We've been able to provide additional availability management and scalability based on putting these two product types together.
In 1998 we released what we refer to as block level incremental backup for databases. This takes the file system, one of the operating system products, and utilizes its knowledge of what is going on in the computer system, passes certain information of what blocks have changed to our backup product, thereby creating a situation where you only have to back up the changed blocks. What we've been able to do there is reduce backup windows. Hence allowing systems to stay available or more time.
We have benchmarks from a few of our customers where they've taken a backup window of about seven and half-hours and moved it to 10 minutes. So from that example you can see the magnitude of how our products are changing the storage/availability paradigm; in this example we reduced the backup window (downtime) by a factor of 45. It really reduces their backup time, but most of all it continues data availability.
In environments such as the Internet, e-commerce, financial services, telecommunications, you need that availability. We've also undergone certain initiatives for storage area networks. We refer to them as SANs. SANs are the focus of the conference. But it's the new wave and a new way of looking at things, and our products fit brilliantly into a storage area network.
To give you an example of how e-business is driving SANs and vice versa, we think of the Forester Report that's out. It's says e-business will double every year for at least the next five years. The first few years there's some huge growth numbers, and then there are doubles on top of those. In that environment the challenge is data needs to always be available, seven by 24, or as we say, "24 by forever." The challenge there is data is growing exponentially.
The availability demands increase, and the predictability within your system changes all of the time. The customers that we have and other people in the marketplace need to manage this without adding in that exponential cost. So if we think of what happened in the mainframe era, managing that type of data, it was done where IBM was using its ESCON technology and proprietary software. Now in client-server, SANs that are being developed need an infrastructure in place to allow the client-server application to be scalable, available and performant. That's right where our software comes into play.
I think it's very important to note that in relation to storage area networks, today all of our products operate correctly in a SAN, and none of our products are dependent on a SAN. So, in a traditional environment or someone migrating to a SAN environment, we do very well.
You asked about customers, and I talked about three segments of the business. In Internet or e-commerce we have just a huge list of customers who have provided about 20% of our revenue this year. It goes all the way from common household names like AOL, eBay, E Trade, Macromedia, to things that might not be as visible, where customers are actually doing things in a B-to-B environment, such as Oracle Online or InfoSeek and those types of customers. Then we also work with different application service providers, people that are managing data and storage for other folks, such as an Exodus or Digix. So we're spread very well there.
In telecommunications we have the who's who as well. The requirements for telecom and financial services are very similar to the Internet where they need to always be available and manage mission-critical applications. In telecom we've got just a plethora of customers. The list gets a little bit shorter over time because these guys are merging with each other. But you would say SBC, which is an amalgamation of a number of companies, AT&T, Motorola, NTT, QUALCOMM. So there is a large group of folks.
Then in financial services arena we're very big as well. We have some of the largest trading floors in the world that are managing their data using our products, such as Lehman Brothers and Morgan Stanley. Morgan Stanley being a great example where they were an early adopter of a SAN, and selected to go with our solutions right off the bat, and they're very referencable right now.
I think also importantly, on the customer side is that we secured two very strategic deals in 1999. One was an end-user transaction at Oracle, where Oracle standardized on our company's products. You've probably seen in the press or in certain comments where Larry Ellison has committed to taking $1 billion of operating costs out of their company over time, and doing that through their IT infrastructure. That's why we were selected to go in and help them manage a lot better and be able to scale back and optimize the use of their internal folks. So that was a huge win for us.
The second win that we had which I think is just as large strategically was the internal use standardization at Microsoft. In the third quarter of this year we won the transaction at Microsoft where they elected to standardize on a single storage software product, and believe me, everybody in the marketplace was there bidding on this. This was the creme de la creme for a competitive win, and we ended up winning that deal hands down and it was all based on technology. So now our sales guys can go into an NT environment and say, "What are you guys thinking about using? Has anybody asked Microsoft what they use?" Or without being flip saying, "Who knows more about NT in the world than Microsoft, and what are they doing?" So it's a great reference for us.
TWST: Is there a chain of events that could lead Veritas to beat even the highest expectations you have now?
Mr. Lonchar: Absolutely. The way that we've given guidance and set expectations is using the premise that "we look at the many ways we have to win". I picture this as a bushel basket (Veritas' opportunities) where my job focusing on external communications is to let the analysts, both on the buy side and the sell side, understand all of the opportunities in that bushel basket and kind of the sizing or the speed and trajectory at which they can move.
Then every 90 days when we report earnings, you basically take the opportunities out and put them on the table, and then we announce our results and everybody can look at this and see what came to fruition. What I try to do is get the people I'm giving guidance to understand that same perspective, but really leave with a bucket rather than a bushel basket, so if any of the items that we have in our basket don't come to fruition, we can still beat the numbers.
What we've been doing this year is upping the estimates and beating the estimates every quarter and by a fair amount, and I wouldn't doubt that we have guidance again next week when we release the quarter. What is allowing us to do that are the opportunities that we're getting are they are growing dramatically in both number and size. But again, if some of these opportunities don't come to fruition we want to have enough cushion so that we still make our number.
An example of an item not coming to fruition is our Microsoft OEM arrangement. In 1996 we entered into an agreement with Microsoft where they agreed to embed some of our products, and then from that we'll have an up-sale product that we sell directly. This is for NT5.0, which is now called Windows 2000. At that time, they believed that they would release their product in 1997. That was one of the opportunities we were showing in that bushel basket. NT5.0 doesn't release until next month. So what we were able to do is not have that come to fruition for a period of time and still beat our numbers, because these opportunities were very rich.
I believe the amount of data that's growing is growing so fast, the explosion, that what we'll see is storage becoming more and more mission-critical.
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