Storage customers to benefit as Data Domain goes public

Data Domain is seeking up to $100M which could likely be ploughed back into in customer service

Data Domain Inc. officially announced this morning that it filed an S-1 statement with the Securities and Exchange Commission (SEC) March 30 in preparation for going public this year.

Goldman, Sachs & Co. and Morgan Stanley will act as joint bookrunning managers, and Thomas Weisel Partners LLC and Pacific Crest Securities will act as co-managers for the offering, according to a press release.

According to its filing, Data Domain will seek a Nasdaq listing under DDUP. According to a Market Watch report, the company is expecting to raise $100 million.

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"We intend to use the net proceeds from this offering for working capital and other general corporate purposes," the company said in its S-1 document. "We may also use a portion of the net proceeds to acquire other businesses, products or technologies. We do not have agreements or commitments for any specific acquisitions at this time."

Data Domain officials were not available for further comment, according to a spokesperson reached Monday morning.

Like fellow initial public offerings (IPO) Riverbed Technology Corp. and Islion Systems Inc., Data Domain is not yet profitable. In its consolidated financial form on the S-1 statement, the company showed net losses for 2004, 2005 and 2006, or $9.8 million, $13.7 million and $4.02 million, respectively.

"As of December 31, 2006, our accumulated deficit was $36.6 million," the filing reads. "We expect to continue to incur losses, and we may not become profitable in the foreseeable future."

Meanwhile, Quantum, which holds data deduplication patent through subsidiary Rocksoft, has a patent cross-licensing agreement with Data Domain for its deduplication technology and will receive 390,000 shares of Data Domain's common stock when it is offered.

Data Domain is part of a new "graduating class" of IPOs filed in the storage industry over the last six months. Most of the companies, which now include CommVault Systems Inc. and Double-Take Software Inc., as well as Riverbed and Isilon, were founded in 2002. Riverbed and Isilon both reported losses in their first quarters as public companies. Industry experts also expect further public offerings in the storage market this year. Likely candidates include EqualLogic Corp. and Compellent Technologies Inc.

As the IPO trend got under way in earnest last year, analysts said the upside for storage users is that startups that raise money through IPOs will have more to invest in customer service and could become more financially stable in the long term. For example, some Isilon customers reported that company's IPO allowed for better staffing at its tech support hotline.

Other analysts are less sanguine, particularly when it comes to companies that have yet to turn a profit. According to a column by Steve Duplessie, founder and analyst with the Enterprise Strategy Group in Storage magazine's December issue, "We seem to have learned nothing from the lessons imposed on us during the stock market crash of 2000 ... After a dearth of IPOs over the last five years, we've suddenly found ourselves back on the brink of stupidity."

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