Stratus Technologies International, a Maynard, Mass.-based maker of fault-tolerant servers, this morning released its earnings for the first time in five years. The company posted revenue of $63.6 million for its third quarter, the same as in the third quarter of its previous fiscal year. Stratus also reported a net loss of $3.6 million, compared with a $1.1 million loss in the year-earlier quarter.
The earnings report represents a milestone for the company, which was split in two following its acquisition by Ascend Communications in 1998 and reunited last year. David J. Laurello, the company's president and CEO, said in an interview with Computerworld that the company's growth is coming from sales of fault-tolerant (FT) Windows- and Intel-based servers, which are built with components and software for redundancy.
Stratus is holding its first earnings call in five years today. What does this mean, and why are you doing it? Late last calendar year, we completed a $170 million bond offering. Bonds are traded in a public market, and you follow a lot the same financial disclosure rules as a public, equity-based company. That's the primary reason [for] this earnings call, and we will continue to do earnings calls.
What was lost and gained following the Ascend Communications acquisition and the subsequent split of the company along its telco and enterprise computing divisions? Back then, the telco division of Stratus developed a signaling gateway application or soft switch. That division moved fairly seamlessly into Ascend and had a very focused telco offering. The singular focus of Stratus Technologies, which was spun out from Ascend, was the enterprise business. What was launched from that spin-out was a drive into the open platform marketplace.
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| David J. Laurello, president and CEO of Stratus Technologies International | |
At that time, Stratus would sell fault-tolerant computers from anywhere from $250,000 to $1 million. Today, our average system price is in the low $30,000s. The spin-out really enabled us to invest in taking FT to a Windows, Intel microprocessor-based platform.
So prior to that, it was a proprietary server line? We had our VOS proprietary operating system, which was the original operating system designed on the platform, and we had two Unix offerings. We had our own Unix, FTX and HP-UX, which we ported to our platform.
What's the future of your legacy server line? We continue to sell our legacy line, Continuum. And the reason we do is because a lot of our applications are very 'sticky' to the platform. In the late 1980s and 1990s, we sold our product to customers that ran their most mission-critical applications on our box. And once it's up and running, our customers tend not to want to change it. If you make an 800 call in the United States, it goes through a Stratus box. If you use an Amex card, in a lot of countries, it goes through a Stratus box. So a lot of people don't like to change that application.
Customers continue to buy as capacity needs increase. We continue to sell our legacy line, and we will continue to sell it forever, for as long as there is a demand.
Will your legacy users be facing an end-of-life scenario at some point? We continue to upgrade the Continuum platform. For our VOS customers, we are actually taking the VOS operating system and migrating it onto the ftServer, the Windows-based server, platform. So we will be providing our legacy customers with a very seamless upgrade from VOS on Continuum to VOS on ftServer. We continue to remain loyal to our installed base, and we will continue to support them.
How important is the ftServer to your company? That's where all our new business is coming from. We started shipping in June 2001, and since then, we've sold over 850 new customers. If you look at the five-year period before we introduced ftServer, we were lucky if we had 20 customers. The new price point and the need for availability in many more applications is really driving our growth.
What are your plans for Linux? In June 2004, our plan is to release a Linux on ftServer. This will primarily be focused on the telco marketplace. In 1998, telco was 50% of our business; now it's about 25%. With this new Linux ftServer, we're really excited about driving some growth in the telco area.
What are your servers competing against? The competition that we come up against the most is Windows clusters. That is the technology that got established in the mid-1990s and has become the alternative to fault-tolerant systems. We offer continuous availability. If there is failure in a cluster, the system has to fail over -- and while that system fails over from one to the other, you are going to get downtime.
With Stratus ftServer, we have full redundancy, and so when there is a failure, the system continues to run. There is no loss of in-flight data; with a cluster, if you have that failure, any data that is in the middle of being calculated is lost. Transient errors, caused by things such as power spikes, will cause a cluster to crash.
The second element is simplicity. When you buy a cluster, that's when the work really starts. You have to do a fair amount of scripting, testing of that scripting, and anytime a new operating system is installed, you have to redo that scripting and testing. With ftServer, just boot the system, load the application and away you go. Those two elements deliver a significant financial advantage.