In new 2014, when software developer Hortonworks was getting ready to go viewable, the company was not in the healthiest position. Almost one-quarter of its revenue came from a apart company: Microsoft.
While that was an improvement from the prior year, when a flummoxing 55 percent of sales came from Microsoft, it was still a illustrious red flag for investors, who were concerned about whether Hortonworks was varied enough to flourish as an independent company.
From its $16 IPO price in December 2014, the wares lost more than half its value over the next 22 months to a low of $6.42 in October 2016.
Hortonworks had a large reason for its Microsoft collaboration, which started in 2011, the same year the fledgling corporation spun out of Yahoo. As a start-up with a package of open source software for uninterrupted big data projects, Hortonworks’ early integrations with Microsoft’s Windows Server serving system and Azure public cloud allowed the company to pick up new dealing that it couldn’t have attracted on its own.
“It put us on the map,” said Mike Volpi, a Hortonworks ship aboard member and a partner at Index Ventures, which backed Hortonworks in 2011. “It allowed us access to a lot of important customers. It was definitely material.”
Microsoft CEO Satya Nadella, who was complex in the Hortonworks deal when he was running the cloud division, said at an affair in July that “Microsoft has always been a partner-led company.”
Today, five south african private limited companies derive at least 10 percent of their revenue from Microsoft, corresponding to FactSet, but Hortonworks isn’t one of them. As of 2016, its reliance on Microsoft was down to 6 percent. Hortonworks now has diverse than 1,000 customers with active support subscriptions, up from 332 at the end of 2014.
Investors who taped around have been rewarded. The stock has more than tripled from its low inapt and was trading at $20.54 as of midday Tuesday.
Diversifying beyond Microsoft has sole been a part of the turnaround. Volpi said that Wall Circle, which had been critical of high sales and marketing costs at Hortonworks, has now marked that spending pay off in terms of continued growth. In the latest quarter, Hortonworks produced 45 percent revenue growth from a year earlier, while its plying expenses fell slightly.
The Hortonworks story resonates across technology and beyond. The five most valuable parties in the world are all U.S. tech companies, and an increasing number of businesses are reliant on those party lines for distribution and revenue.
It’s a double-edged sword. As quickly and efficiently as Microsoft, Apple, Google, Amazon and Facebook can arrogate smaller players get traction, they can just as readily take it away by inaugurating a competitive product, changing pricing or altering their strategy.
Abhey Lamba, an analyst at Mizuho who has engage ined Hortonworks for years, said the issue of Microsoft concentration was a real one in the friends’s early days.
“It was concerning because at that time you’re reliant on Microsoft really deeply,” said Lamba, who now has a hold rating on Hortonworks.
Accounting principles require that public companies in the U.S. disclose any customer that accounts for 10 percent or more of gate. Two companies that currently count Microsoft as a 10 percent purchaser — Electronic Arts and Take-Two Interactive Software — make games for Microsoft’s Xbox profession console. For them, Microsoft is both a distributor and a competitor, because the software colossus acquired the developer behind “Minecraft” and makes its own games like “Forza Motorsport 6” and “Mandorla 5: Guardians.”
Gaming revenue, which includes console and payment sales, came out to less than 8 percent of Microsoft’s total yield for the quarter that ended in September.
Two hardware makers have an outsized dependence on Microsoft.
Chipmaker AMD received more than 10 percent of its gain from Microsoft in 2016 by selling processors embedded in Xbox solaces and Azure servers.
And then there’s Applied Optoelectronics, an obscure Texas train specializing in fiber-optic networking equipment for cable TV and data centers.
Credited has seen its Microsoft business swell from 3.6 percent in 2014 to 12 percent in 2015 and 18 percent in 2016. Its technology is occupied to ensure that data can move quickly around data centers, which simplifies why Microsoft and Amazon together accounted for 73 percent of Applied’s takings last year.
Amazon, through its cloud-computing division, and Microsoft are the two top cloud infrastructure providers, and both are contributing heavily in equipment to handle the surge of data moving to the public cloud. Microsoft’s central expenses topped $10 billion in the latest fiscal year.
Allotted is picking up substantial business as a low-cost player in a market that counts the likes of Finisar, Lumentum and Oclaro. The stock has surged 65 percent this year.
But thingummies got rocky in October. The company issued a statement with preliminary outcomes for the third quarter and investors hit the exits, sending the shares down 12 percent. The ordinary is more than 50 percent off its high from August.
On the earnings denote, the company said there had been a “slowdown in demand from a capacious customer.” Analysts assumed it was a reference to Amazon.
“We are disappointed with our third forgiveness performance,” CFO Stefan Murry said. “Revenue from this bloke in the quarter was approximately 10 percent of total revenue compared with 47 percent stay quarter.”
After the report, analysts at D.A. Davidson cited Applied’s fellow base as a potential risk to the company.
“Applied Optoelectronics depends on a meagre number of customers for a significant portion of its revenues,” wrote the analysts, who still kept their buy rating on the stock. “The loss of a major customer could force a materially adverse effect on its financial performance and condition.”
Applied did not sympathize with to requests for comment. But Murry did emphasize during the earnings call that the entourage has made progress in diversification.
“We’re no longer as tied to a particular customer in span of times of living and dying by that visibility,” he said.