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Volume 4, Number 9 -- March 7, 2007

Opsware Breaks $100 Million in Sales, Buys OEM Partner iConclude

Published: March 7, 2007

by Timothy Prickett Morgan

Systems and software management vendor Opsware announced its sales for the fourth quarter and full year for fiscal 2007 yesterday morning before the market opened in New York, and said that for the first time, the company's annual sales had broken through the $100 million barrier. Opsware also announced that it would spend $30 million and 3.3 million of its shares to acquire iConclude, an IT process automation software vendor that has been OEMing its technology to Opsware for its Orchestrator product.

iConclude is a privately held company based in Bellevue, Washington. The company was founded by ex-pats from Mercury Interactive (now part of Hewlett-Packard) and Rational (now part of IBM), and its Run Book Automation software tools provide a complementary function to the five elements of the Opsware server and network automation tools.

If you don't know how network operation centers, or NOCs, work, the idea is pretty simple. The network operators who handle big corporate networks get alerts, and they have a manual, called a run book, that tells them what to do if they see a particular kind of alert. The run book also tells them what to do if that doesn't work, and if they can't solve the problem, then the problem gets escalated up to a level of tech support where people have much deeper expertise. What the iConclude tool does is automate what those operators used to do, and that means NOCs can run more efficiently and with fewer people.

As it expanded out from server patch and provisioning automation into the network automation in the past few years, Opsware came to the realization that it needed a way to be able to hook its system and network management tools into the monitoring, ticketing, and asset management solutions that companies were using. Which is why it partnered with iConclude last year.

According to Tim Howes, chief technology officer at Opsware, the iConclude run book tool has a very intuitive graphical user interface that allows operators to easily do their jobs--which he said is important given that NOC personnel have relatively low expertise. "You don't have to be a supergenius to use the iConclude tools," he says. Which is one of the reasons why Opsware decided to buy the company.

The other reason, says Howes, was to get a tool that could help Opsware better cope with the Information Technology Infrastructure Library (ITIL) framework for managing servers, networks, and other IT gear. "ITIL is getting a lot of traction in large IT organizations, but the difficulty is that to manage ITIL, you need a system that rises above and spans the various change management, monitoring, and other tools," says Howes. This is something that the iConclude tools can do, he says.

The ownership of iConclude will also allow Opsware to better cross-sell its server and network automation tools into NOCs. With the acquisition, Opsware has six different tools to sell, which is quite a bit more than the two tools it had at the start of 2006.

That broader portfolio is, of course, one of the reasons why Opsware's sales have been growing very fast in recent years. In the conference call with Wall Street analysts this morning, Ben Horowitz, the company's president and chief executive officer, said that publicly held Opsware was on tract to be profitable soon--something the company's shareholders and founder, Marc Andreesen, clearly want to achieve.

Horowitz said that for the three months ended January 31, Opsware had sales of $29.6 million, up 59 percent, and for the full year, sales came to $101.7 million, up 67 percent. The company had a net loss from operations of $3.2 million in the fourth fiscal quarter, but some investments and the sale of its Managed Services Business unit for $329 million allows Opsware to have a net loss of only $1.7 million. For the full fiscal 2007 year, Opsware had an operating loss of $20.8 million and a net loss of $16.1 million.

Electronic Data Systems has been a big backer of Opsware from the beginning, and licenses the software to run its vast data centers. The company contributes heavily to Opsware's books. But sales outside of EDS are growing faster than sales inside--which is exactly what Opsware wants to have happen. In the fourth quarter, sales exempting EDS were $24.1 million, up 81 percent, and for the full year, non-EDS sales came to $80.6 million, up 103 percent. Horowitz said that Opsware signed twice as many deals this year as it did in fiscal 2006, which obviously drove those sales.

A recent partnership with Cisco Systems, which just started reselling Opsware's network management tools, is going to be a big factor in this coming year. Looking ahead, Opsware says that it expects sales of between $26 million and $27 million in its first quarter of fiscal 2008 ending on April 30, and says further that it expects a non-GAAP loss per share of 1 cent to 2 cents. For the full fiscal 2008 ending next January, the company is forecasting sales growth of at least 60 percent outside of its EDS deal, and expects overall sales to be between $142 million and $147 million. The iConclude product, now entirely Opsware Orchestrator, is expected to bring in between $2 million and $3 million in sales in fiscal 2008. Non-GAAP operating margins for fiscal 2008 are expected to be in the range of 5 percent to 8 percent, and the company is expecting to pull 9 cents to 13 cents to the bottom line (excepting certain GAAP items, of course).

Horowitz said that Opsware was at breakeven in fiscal Q2 of 2007, and was profitable in Q3 and Q4 on a non-GAAP basis. Whether Opsware will pull in an actual profit printed in black in fiscal 2008, with no exceptions, remains to be seen.


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Editor: Alex Woodie
Contributing Editors: Dan Burger, Joe Hertvik,
Shannon O'Donnell, Timothy Prickett Morgan
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TABLE OF CONTENTS
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The Windows Observer

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