Adaptec Takes Action

Along with earnings in line with expectations, Adaptec Inc. (Nasdaq: ADPT) announced a new acquisition this week and unveiled its first line of external iSCSI storage devices.

The news represents Adaptec's efforts to become an "end-to-end storage" provider -- the strategy most big storage companies are adopting this year. In Adaptec's case, the vendor is looking to leverage capital to build out its product line, particularly in areas like iSCSI, where it sees a market for its particular expertise among small to medium-sized businesses.

Let's look at the news items individually.

Earnings: The company announced income of $5 million for last quarter, up from $3 million the previous year. Revenue of $115.1 million rose from $109 million a year ago. The company forecasts revenues this quarter to be flat sequentially, falling between $114 and $116 million instead of the usual seasonal decline (see Adaptec Reports Q3 Earnings).

Acquisition: During a conference call with financial analysts, Adaptec CEO Bob Stephens said the company paid between $20 million and $25 million Monday for U.K.-based Elipsan Ltd., which makes storage virtualization technology (see Adaptec Gets Virtual With Elipsan). Eurologic spun off Elipsan shortly before Adaptec paid $30 million to acquire Eurologic last April (see Adaptec Adopts Eurologic). Stephens said Adaptec passed on Elipsan back then because Elipsan had no product at the time. He said Elipsan now has product shipping, and part of its software will be incorporated into Adaptecs new iSCSI product.Adaptec isn't alone in citing the need for virtualization technology as a driver for acquisitions. EMC Corp. (NYSE: EMC) purchased VMware (NYSE: EMC) last month, and Veritas Software Corp. (Nasdaq: VRTS) bought Ejasent three weeks ago (see EMC Gobbles VMware and Veritas Nabs Ejasent). Stephens said Elipsan’s technology will help customers manage data between Adaptec RAID systems.

Adaptec concedes that the buzzword "virtualization" hasn't been firmly nailed down. “Storage virtualization is probably one of those overused and misapplied terms,” Stephens said. “It is a technology designed to simplify network management.”

He said Elipsan, which has 20 employees, should start generating revenue for Adaptec this quarter. Even with the Elipsan employees, Adaptec CFO Marshall Mohr said the company will likely reduce headcount over the next year and migrate engineering jobs from the U.S. to India.

New iSCSI products: While Adaptec has made iSCSI adapters for awhile, its next product rollout will be external storage devices based on iSCSI. Included in the rollout, expected later this week, are the following:

Despite ongoing support of Fibre Channel, Adaptec is clearly basing its future on IP. During his call with analysts, Stephens remarked, "We expect acceptance of our iSCSI-to-serial-ATA RAID storage arrays to drive increased demand for our iSCSI host bus adaptors, which customers will demand as their performance needs grow."Some analysts worry about the iSCSI emphasis evident in the acquisition of Elipsan and in the new product rollout, at least over the short term. In a research note today, Robert Montague of RBC Capital Markets wrote that Adaptec is a company in transition: "The company may emerge as a contender in the still emerging markets for iSCSI, Serial-Attached SCSI (SAS) and Serial ATA, but the timing is uncertain."

— Mary Jander, Site Editor, and Dave Raffo, Senior Editor, Byte and Switch