SolarWinds (NYSE: SWI) designs powerful yet user-friendly enterprise IT infrastructure for organizations of all sizes. One example of SWI's products is software tools to more comprehensive software products (plug-ins). Since the company's founding, SWI has relied on acquisitions to expand the range of elements of IT infrastructure provided including storage and virtualized servers. By allowing its products to be downloaded directly from SWI's websites then installed, SWI created a pool of loyal IT professionals in small and mid-size businesses that are willing to purchase these tools at higher volumes. Because IT infrastructure is not a material revenue generating factor in most businesses, it is often neglected during business downturns, therefore hurting SWI's margins. The recent increased interest in cloud computing will bring about a new set of issues that should create business for SWI.
SWI's main pool of customers lie within North America. The company still believes that the IT infrastructure management markets in North America remain significantly under-penetrated and represent a strong opportunity to continue its growth. By leveraging its current customer base and end-user community, SWI hopes to develop a strategic marketing program to identify new customers.
A few smaller divisions exist in Ireland, Singapore and Australia. As the company continues to develop new software products, SWI is considering scaling and developing its existing group of international distributors and re-sellers. Further, by cross-selling and up-selling existing products, the company hopes to add incremental capacity for existing users.
SWI groups its segments into "License" and "Maintenance & Other". Revenues for both segments totaled $152.4 million in FY2010, a 30.2% increase compared to $116.4 million last fiscal year. This increase was comprised of a $22.7 million increase in "maintenance and other", which resulted from a continued growing maintenance base due to new customers through acquisitions and high customer retention. "License" increased by $13.2 million in the same period due to increases in sales transaction volumes in its core enterprise-class network and IT management products.
When a company is strapped for cash, improvements in Information Technology is often put on the back burner as the company needs to focus on its core products. This is specifically because information technology facilitates efficiency, but managers' intentions to protect the bottom line often strip IT spending until it is absolutely necessary. Further to capture SWI's risk, SWI primarily rely on Yahoo! (YHOO) or Google (GOOG) search engine hits to its own website as a source of marketing.
In exception to its current base of loyal customers, SWI therefore does not have a steady base for new customers in exception to word-of-mouth communication and search engine marketing. In the case of an economic downturn, it is highly likely that SWI will lose a large part of its business. Further, if SWI attempts to replace this lost traffic, it may be likely that the increase in sales and marketing expenses does not offset additional revenue.
Cloud Computing technologies have become more and more useful in corporate daily operations. The ability to work on the same project, but thousands of miles away saves money and time on business travel. As a result, businesses have become keen on adopting these technologies to create greater efficiency.
One problem that occurs in any new adoption of IT technology is the integration of old technologies. As businesses continue to adopt cloud computing resources, clients will need the services of IT developers such as SWI to provide an easy transition. SWI therefore stands to gain greater customer traction through these venues.
The IT industry is dominated by large players such as: