InformationWeek
Defining The Business Value Of Technology
| November 10, 1997 |
Taking Stock: Security P ays For LegatoLegato Systems emerges as a contender with uniquestorage-management solutions, and innovation was the key
Fortunately, it did not take IS managers nearly as long to notice. They have been benefiting from Legato Systems' leading enterprise storage management, backup, and recovery software solutions for some time.
What makes Legato so special? As most IS managers will attest
, one of their worst nightmares is the failure of their distributed storage system, with little or no backup capability or control. Legato's flagship product, NetWorker, ensures that this event will be little more than a temporary inconvenience, rather than a permanent headache.
For example, NetWorker Business Suite provides backup solutions while a database is online, allowing users continuous access to their database applications. Administrators have the capability of implementing full or partial backups. With the introduction this year of more than 20 new products and modules for its core NetWorker system, and added support for most storage platforms, Legato has expanded its storage-management software business to address both large-scale enterprise systems and workgroups.
Innovation has been the key to Legato's strong business recovery. The company recently announced shipment of its Global Enterprise Management of Storage (Gems) version 1.0 and NetWorker Power Edition for Windows NT Server Enterprise
4.0.
Gems allows administration and control for protecting distributed storage and, in addition, will let IS managers monitor data controlled by other products, including those within legacy systems. Power Edition provides high-end backup and recovery of large Windows NT server installations. New products such as these should help Legato retain its leading market share position in the NT marketplace and maintain a very competitive position within the Unix environment. Total sales, in the most recent third quarter, were $21.4 million, an increase of 47% over last year. Product revenue, the primary growth engine for the company, grew 53% to $12.7 million over last year. NT license revenue grew 150% last quarter vs. the same period last year.
Sales should be supported by partnerships with leading vendors such as Sun Microsystems and Digital Equipment. Also, recent agreements with system vendors such as Oracle and Groupe Bull have helped to drive the most recent quarter's revenue from original equipment manu
facturers by 26% over last year. It also helps that Legato has a growing direct sales force, which recently signed its first deal for more than $1 million.
Clouds Ahead
I expect Veritas to be a major force to contend with. Also, since Legato's deals are getting larger, more of the company's revenue will be deferred, potentially resulting in more volatile future earnings. Wall Street hates uncertainty and can punish a stock price mercilessly if it falls below consensus earnings estimates.
I project Legato's 1998 revenue will be about $120 million, resulting in an increase in earnings per share to $1.20, from 82 cents per share in 1997. Obviously, the company's primary goal of offering a complete suite of integrated solutions centered on enterprise storage management that will enhance and sim
plify network computing is not only reasonable, but profitable as well.
William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 list. Reach him at
bschaff@bayisle.com
.
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s a matter of good investment discipline, I often review my own list of weathered stocks that have been beaten down. Earlier this year, Legato Systems showed up on my list of opportunities as it was trading around $12. Now that it's at about $45, Wall Street seems to have fallen in love with Legato's future prospects.
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