Dataram Hit by the Economic Downturn, But Ready to Do Biz

Published: March 2, 2009

by Timothy Prickett Morgan

John Freeman, the president and chief executive officer at clone memory maker Dataram, sure picked a tough time to come on board when he took the helm last May. Almost immediately, the economy went on the rocks, but Dataram, which makes relatively inexpensive memory for lots of different servers (including IBM's System i, System p, and Power Systems iron) is hanging in there despite the tough economy.

For the fiscal third quarter ended January 31, Dataram reported sales of $5.64 million, down 15.6 percent compared to the year-ago quarter. Even though the company trimmed back engineering costs, research and development for new storage products ate up $574,000, and sales and general costs rose by $450,000. So the decline in revenues and the increase in costs pushed the memory maker to a $1.77 million loss from operations. But Dataram had $657,000 in tax benefits on its books, so its net loss only came in at a little more than $1 million for the fiscal third quarter. For the nine months of fiscal 2009, the company has booked $23.8 million in sales, up 5.5 percent, but costs at the company rose, pushing it to a $2 million loss.

"Our operating results in the third quarter were severely impacted by current economic conditions," Freeman explained in a statement accompanying the financial results. "Many of our customers have curtailed or temporarily suspended their capital spending while they adapt their business plans to the current environment. While challenging, this environment also presents us with opportunities, which we are aggressively pursuing. Our memory products offer clients significant savings which support budget tightening initiatives and also extend the life of their current systems. We are also seeing increased interest from government clients where we have recently invested as one of our strategic initiatives. Nevertheless, we cannot predict how long current conditions will continue and we are reviewing our business model to make improvements to meet today's business challenges."

As this newsletter reported back in January, Dataram has been offering a "try and buy" program for its server memory, and this approach to sales is no doubt part of the reason why costs have risen. You can let people use the product without locking up some inventory, and inventory is a cost. But a try and buy approach is a good one if you are trying to convince new customers to give a product a whirl, in this case, for 60 days without having to pay for it.

Of course, knowing that your memory supplier is losing money doesn't inspire financial confidence. But you have to read the financial reports fully. Dataram has $15.1 million in the bank, more than enough for its business to easily ride out a few rough quarters, and probably even longer. How many companies cam you name that have nine months of revenue on hand as cash? I don't know many.

Let's make a comparison just for fun. In Microsoft's second fiscal quarter ended in January, the company had $8.35 billion in cash and $12.4 billion in short-term investments, against a revenue stream of $16.6 billion. Now, Microsoft brought $4.1 billion to the bottom line, but then again Microsoft has a monopoly on desktop operating systems and damned near one on X64 servers, so you would expect that. Microsoft certainly does not have a cash hoard any more, relative to its revenue stream, that compares to what Dataram has. Microsoft would have to more than double up its cash to $44 billion to match the same multiples Dataram has based on their most recent quarters.

If you have a server, and you are looking to upgrade performance and save money, you need to look high and low for third-party suppliers and get as many people at the negotiating table as possible. Make that money you have go as far as you can.

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