Teradata Corporation (NYSE:TDC) may face the challenge of customers grappling with higher costs maintaining its systems as they look to optimize their budgets for new projects heading into 2014. There are complex sets of circumstances around Hadoop and the impact on traditional vendors such as Teradata.
Teradata is a provider of enterprise data warehousing (EDW), including enterprise analytic technologies and services, and with the acquisition of Aprimo in early 2011, it became a provider of integrated marketing software. Teradata's data warehousing solutions are comprised of software, hardware, and related business consulting and support services.
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The consensus on the impact from Hadoop on traditional EDW vendors is that the technology is encroaching on workloads of more expensive technologies.
Sterne Agee analyst Alex Kurtz said his consultants suggested that 20-25 percent of their deal flow during 2013 was related to Hadoop but suggested few instances where the new technology was cannibalizing existing technologies. From their perspective, the lack of tools to integrate into traditional software platforms and the lack of internal talent on the technology has restricted Hadoop from moving into core EDW functions.
They have seen, to date, deployment of Hadoop as a data capture engine that would funnel data into a traditional EDW (in some regard aligning with Teradata management's historical comments).
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That said, Teradata cost draws scrutiny While consultants have an institutional bias toward competitive offerings to Teradata, it was clear from the call that the desire from existing Teradata customers to find better value, when possible, is driving deal flow for their firms.
One of the key factors that act against Teradata is when a customer wants to upgrade to a Teradata solution, he n! eeds to upgrade the whole hardware stack, which might not be feasible.
Looking to fiscal 2014 product growth of 8.2 percent (versus Street at 7.3 percent), Kurtz certainly could see moments of outperformance as the sales organization recovers from a down 7 percent in fiscal 2013.
Yet, recovering the growth multiple in the mid to high teens could be a challenge given growth in alternative, lower cost platforms such as from Amazon.com, Inc. (NASDAQ:AMZN).
Amazon's combination offering of Redshift, EMR (Elastic Map Reduce) and DynamoDB is hurting all engineered system vendors including Oracle's (NASDAQ:ORCL) Exadata, IBM's (NYSE:IBM) Netezza and Teradata.
Global Equities Research analyst Trip Chowdhry notes that he has not come across any customer, who will increase their spend on Teradata offerings. Specifically, he said Wells Fargo, Bank of America and eBay will spend less on Teradata in 2014 versus 2013. Chowdhry says that Teradata revenues probably could decline between 5 and 9 percent for the next 2 - 3 years.
Moreover, Teradata's longer-term outlook for business created more uncertainty around the prospects of returning to improved product growth rates.
The company noted that 20-30 larger transactions not only slipped out of the third quarter 2013 but are now considered part of the fiscal 2014 outlook. In addition, the company provided (and acknowledged for the first time) that a sub-segment of their installed base has transitioned to Hadoop - with management providing a 4-8 percent range.
Kurtz said when asked about the longer-term outlook, management indicated their ability to reclaim 10 percent total revenue growth, but as the discussion continued, the set of circumstances around Hadoop, timing of new products like Aster and Capacity on Demand made it difficult to judge the timing.
Certainly there are positives, with growth in the US at 8 percent and most of the weakness isolated to Japan and other emerging markets, which is not the majority of reven! ue today.!
However, the acknowledgment of Hadoop as an issue validates many bear views about death by a thousand cuts. When management was asked about Big Data products like Aster, there continues to be hesitancy to outline real numbers around higher-growth platforms.
Kurtz believes that Teradata reclaiming a historical multiple would be challenging heading into fiscal 2014 as normalized product growth likely sub 10 percent. It would be a big task without a significant rebound in product growth rates starting in the first half of 2014.
Teradata sees fiscal 2013 revenue growth flat with last year and non-GAAP EPS of $2.70-$2.80. Street expects earnings of $2.74 a share on revenue of $2.67 billion.
TDC stock trades 13.6 times its forward earnings versus historically in the 15-25 times range. The stock dropped 34 percent this year and traded between $39.16 and $69.65 during the past 52-weeks.
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