The increasing reliance on business-critical enterprise applications such as e-mail, relational databases, enterprise resource planning, customer relationship management and workgroup collaboration tools, as well as digital content for Internet services, online video and digital imaging, is resulting in the rapid growth of data across all enterprises and geographies.

In addition, global compliance initiatives and government regulations, such as those issued under the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and the Health Insurance Portability and Accountability Act, as well as company-specific policies requiring data preservation, are contributing to the growing volumes of data that must be retained and managed for long periods of time or indefinitely.

The first storage technology used with general computing was based on directly attached disk drives. This computing paradigm evolved into mainframe computing with the development of mainframes by IBM, and other vendors using the MVS operating system. The first advanced storage systems were optimized building blocks designed to be attached to these mainframes. These storage systems, which became known as monolithic storage arrays, provide mainframe-specific storage features, such as large caches, as well as redundant disk protection, but at a significant up-front capital cost.

The Company’s storage arrays support a wide range of open systems-based servers including various implementations of UNIX, Windows and Linux.

The 3PAR InForm Suite is the Company’s proprietary software platform that provides the core intelligence for each of its InServ Storage Servers.

The Company also provides its customers with a number of optional software applications, including: Thin Provisioning, Dynamic Optimization, Virtual Copy, Recovery Manager, Remote Copy, System Reporter, System Tuner and Multipath I/O.

The Company’s InServ Storage Server products utilize a cluster-based approach and feature a full mesh backplane that connects all storage controller nodes over low-latency, high-bandwidth links to form an active cluster.

The InForm Suite provides the core intelligence and software for the Company’s InServ Storage Servers. At the heart of the Company’s InForm Suite is the InForm OS, the operating system software that provides internal storage virtualization and volume management.

The InForm OS employs a three-level mapping methodology similar to the virtual memory architectures of high-end enterprise operating systems. The first level of mapping virtualizes physical disk drives of any size into a pool of small uniform-sized data segments, or chunklets, and manages the dual paths between each chunklet and disk drive.

The Company has integrated its thin copy snapshot technology—Virtual Copy—with a variety of applications including Microsoft Exchange, Microsoft SQL Server and Oracle databases. This integration is designed to ensure that snapshots taken of data stores are consistent, enable integration with back-up products and facilitate rapid application recovery.

Gross margin increased to 65.0% in the first quarter of fiscal 2008 from 63.9% in the first quarter of fiscal 2007.

Research and development expense increased by $2.8 million, or 57%, to $7.8 million in the first quarter of fiscal 2008 from $5.0 million in the first quarter of fiscal 2007.

Sales and marketing expense increased by $4.7 million, or 80%, to $10.5 million in the first quarter of fiscal 2008 from $5.8 million in the first quarter of fiscal 2007.