After its first quarter results, Teradata (TDC, Financial) dropped to $43, representing a 2.9% decline year to date. The company's total revenue received pressure from its Americas region, due to a decrease in the purchases from customers.
Teradata reports its total revenue in three software segments: products, maintenance services, and consulting services. License sales of Teradata’s database and applications generate revenue for the product software segment. Revenue of the products software segment increased 10%, year-over-year. Customers delayed purchases of new and expensive data warehouses and preferred to hire consultants to improve the performance of their current data warehouse facilities. Consequently, the company’s consulting service revenue increased 2%, year-over-year. Maintenance services revenue increased 9% year-over-year. Consolidated revenue increased 7% year-over-year, to $648 million.
To register growth in the upcoming quarters, the company is betting on its new data warehouse management's portfolio. The introduction of ‘Hadoop,’ a database management technology, in its product portfolio is expected to be the major revenue generator of the company.
Ineffective Competitors
A new database management technology, ‘Hadoop,’ earlier posed a big threat for Teradata due to its attractive low cost features.
| Â | Setup Cost | Hadoop | High End Teradata | Low End Teradata |
| 01 | Initial (one time) | $4,444,532 | $57,000,000 | $12,000,000 |
| 02 | Annual Maintenance & Administration | $1,643,627 | $20,193,400 | $4,443,400 |
As per the above table, Hadoop is more economical than Teradata’s other data management technology. Facing risk from the low cost Hadoop, the company announced, a new portfolio of data warehouse products including applications for Hadoop. The Teradata appliance for Hadoop is a standalone server installed with Hadoop. Though economical, the installation and maintenance of Hadoop requires technical expertise.
To decrease the complexities arising from installation and managing Hadoop, Teradata formed a partnership with Revelytix to include its software ‘Loom’ with Hadoop. Revelytix is a commercial software company that provides tools for enterprise information management.
Loom will bring key features to Hadoop including dynamic dataset management to decrease the complexities of Hadoop. The Hadoop market expects to grow at a rate of approximately 55% from $2.31 billion in 2013 to $8.96 billion in 2016. This growth prospect of Hadoop fortifies Teradata’s new portfolio.
Advancing with the Americas
Teradata will see a surge in its Americas market with new customer deals. These new customer acquisitions started at the end of the first quarter and include deals from an aerospace company and a direct broadcast satellite service provider company DirecTV.
DirecTV, with its 18 million subscribers in Central and South America, is the biggest pay TV provider in Latin America where the market for such services is already growing at a much faster rate than the mature U.S. market. The customer base has been constantly rising, primarily due to an increase in the number of customers in Argentina, Brazil, and Colombia. The middle market focused programming and the growing popularity of prepaid products of the company led to its growth in this region.
The modification of features to its data warehouse facilities, with the inclusion of Hadoop, will be an added advantage for DirecTV. DirecTV expects revenue to be in the $8 billion to $9 billion range, down from a prior forecast of $10 billion by 2016.
Furthermore, Teradata sees an opportunity from an aerospace company. The aerospace company will use Teradata’s enterprise resource planning software for its cost reduction program.
All the above mentioned deals are expected to raise its Americas revenue for Teradata in future
Conclusion
Teradata is one of the leading companies to provide enterprise wide data warehousing. To maintain its dominance, the company seems to be moving in the right direction with its development plans of data warehouse platforms with the inclusion of Hadoop. Teradata also expects growth in the Americas region. Even though the first quarter was quite slow, future quarters will bring growth opportunities for Teradata. I expect the above discussed strategies will bring much needed support to the stock in the future.
