Teradata Transition On Course in Steady Quarter, With Exciting New Offerings Ahead

How good was Teradata’s Q3? Not bad, but no improvement over a so far lackluster year, which nonetheless has seen the stock  price rise steadily. In 2008,  the striking rise in Teradata’s Linux revenue growth was matched only by the corresponding drop in its Unix revenue, and that “steady as she goes” performance continues through its still unevenly applied OS transition. In Q3, revenues were down a little (3%) year over year, and margin was flat (down 0.6%). YTD product revenues are down 11%.  Service revenues were up 5% for the quarter but only 2% YTD.  Still, net income rose 5%, in part because of strong expense controls. Since early 2008, Teradata has lost a little momentum through a difficult economy compared to its rivals at Oracle and IBM. Its next transition – after independence from NCR and the OS shift – is a product portfolio change catalyzed by the growth of appliance competitors like Netezza. So far, Teradata has managed to drive the product changes into the market well, claiming 65% of its appliance sales are new names. The hot new all-SSD Extreme Performance Appliance is now coming on-stream, and will create a new category advantage if, as Teradata believes, there are customers willing to pay for its spectacular performance.

Q4 may be a challenge, and will be compared to a strong Q4 that helped last year’s numbers. “Predictability has been a challenge,” management said on the conference call – but they raised the guidance. Why? Encouraging factors include the growth in sales territories as they have invested in their go to market engine. It always takes time to achieve momentum with new sales teams, so there is reason to be optimistic that an improving economy and more feet on the street will begin to make an impact. But that is by no means certain, although new account wins have been “steady across Q1, Q2 and Q3” this year, as CEO Mike Koehler said in response to a financial analyst’s question. He said Teradata was not feeling competitive pricing pressure or sales cycle lengthening. Still, the impact so far has not been enough to prevent the revenue declines.

Teradata doesn’t give numbers of new customers, but named quite a few marquee ones, including Comcast, Vonage, Habitat for Humanity, Royal Bank of Canada, Discover Card, and Aviva. And although competitors have been touting wins in Teradata shops, the company continues to get substantial upgrades and new business from many of the same names. Firms like Netflix, Vodafone, Electronic Arts, Qantas, Westpac, Overstock.com, eBay, ETB, Telefonica Argentina, the  US Defense Logistics Agency, Pakistan Mobile and the Commercial International Bank of Egypt reflected global success, although Asia was a weak link .

Koehler touted the recent Partners conference and its customer presentations as a showcase for Teradata’s success. My own experiences there certainly agree with this assessment. A loyal base making transformative applications with Teradata technology is one of the company’s strongest assets. Teradata announced cloud availability on Amazon EC2 for developers to create their offerings, and VMWare availability; both of these expand access, but not much revenue.

On the product side, the story is emerging, but needs a little polishing.  Teradata now has 5 platforms in its “purpose-built product family;” Koehler listed them all on the financial call. This was overkill. Financial analysts are less interested in those details than in the positioning. Similarly, in his Partners conference keynote, the unfinished status of the positioning was very clear – Koehler gave a strong, well-articulated rationale for the top of the line EDW, with reference to Teradata’s workload management, one of its greatest strengths. But the transition to “We like data marts too” was jarring and seemed flatly contradictory – the story needs to begin with the assertion that there are many use cases that require differing configurations, “and we have them.” (Note that some commentators are skeptical that workloads are homogeneous and predictable enough to warrant such configuration specificity; Curt Monash discusses the issue here.) With its strong base of happy customers, Teradata can back that story with real world examples better than many of its competitors – its customer reference organization is to be commended for its exemplary effectiveness.

The product lineup is shown here, from a slide used to brief analysts. Reading left to right will no doubt be confusing. One hopes the presentation will change as the story develops. I’ll discuss them in a different order below. From my perspective, the most exciting innovations here are in the “Extreme” products, and I’ll discuss them at the end.

The Data Mart Appliance (551) is a single node, single cabinet offering with an upper limit (it has no interconnect) of 6 Terabytes, running on Windows, SUSE Linux or Teradata’s Unix MP-RAS. The Data Warehouse Appliance (2555) handles 20 Tb and four nodes per cabinet but can scale up to 11 cabinets (half cabinets are available for more granular scaling needs) for up to 230 Tb of usable data and for some reason runs only on Linux. It uses the Teradata BYNET over Gigabit Ethernet and adds automated node failover (hardly needed for the mart since it’s only one node.) At the top of the line is the Active Enterprise Data Warehouse (5555), with 9 nodes and up to 300 Gb per cabinet and a maximum of 1024 nodes and 10 Pb. It restores Unix MP-RAS and Windows to the OS list and the interconnect is the 3.2 version of BYNET. Teradata extends its availability with hot standby and a dual active system capability.

The big bet is next: Teradata has identified a use case that it calls “hot data” for operational BI and has taken the leap ahead into solid state disk (SSD), asserting that those customers who need its extraordinary speed are ready to pay for it. The current generation of SSDs uses interconnects and form factors that mimic disk drives, and pay a performance price for it, but the improvement is so great that it doesn’t matter yet. It changes the physics: over the past decade the performance of processors has moved farther and farther beyond that of disk. Using memory-based stores completely transforms the art of the possible. They permit aggregations of millions of rows in a second, and load speeds hitherto unheard of. The hot new  Extreme Performance Appliance (2550), now in beta, supports 9 nodes and 9 Tb per cabinet, with an upper limit of 24 of each. It runs only on SUSE Linux and uses the BYNET interconnect over 10 Gb Ethernet – the only configuration to do so (so far.) On the Partners floor, this was a sensation – everyone wanted to see “The Blur”, and the buzz was everywhere.

The other Extreme is the Data Appliance (1555) – neither mart nor warehouse. It scales beyond even the Active EDW with an upper limit of 5Pb, using 9 nodes per cabinet as that model does, and the same limit of 1024 nodes. It uses BYNET V3 but doesn’t have all the availability features of the Active EDW, or the latter’s support for Unix MP-RAS and Windows – it’s SUSE Linux only. The storage difference comes from its use of 1TB SATA drives – up to 124 of them per node. This machine is pointed at the “big data” market, which often uses data that is not considered data warehouse fodder – new data types and archived data that is used for advanced multiyear analyses, for example.

The future laid out for us by the Teradata team has a solid roadmap with exciting possibilities. You can get a great summary of some of the issues and opportunities in an exceptionally useful post from Curt Monash here. But one hopes Teradata rationalizes the bewildering story, the wild mix of OSs, interconnects and disks, into a more coherently told story. Sales forces respond slowly to changes of this magnitude, and the confusion during this transition will not help. To its credit, Teradata has introduced fascinating tools for the assessment of customer needs that will help, and if it executes on this transition as well as it has on the past two, Teradata will remain formidable in the next few years as this cycle matures and garners customer successes.