Xiotech Ponders Public Path

Like two of its rivals did this year, storage subsystem vendor Xiotech Corp. will face an IPO decision in 2005. It will choose whether to follow Xyratex Ltd. (Nasdaq: XRTX) public or wait as Engenio Information Technologies Inc. did (see Xyratex Has No IPO Regrets, Xyratex Swims in Public Pool, and Engenio Postpones IPO).

So far, Xiotech CEO Alain Andreoli sounds likely to play it cautiously rather than take the plunge.

The market is very difficult to read,” Andreoli says. “You have to go out at the right time. I’m no politician, but I hope after the situation stabilizes in Iraq, and the government addresses the deficit, and the economy rebounds globally [ed. note: and Peter Cottontail comes hippity-hop-hoppin' down that Bunny Trail], we can do it in the second half of next year or 2006. Our investors [Oak Investment Partners] are long-term investors, so we have no problems with going in 2006. By then, we will have a number of quarters of growth under our belt.”

Xiotech has certainly been building for something big over the last year. First, it lured Andreoli last December from McData Corp. (Nasdaq: MCDTA), where he was worldwide sales VP for the switch vendor (see Ex-McData EVP to Head XIOtech). Xiotech hired Maranti Networks Inc. founders Kuldeep Sandhu and Santosh Lolayekar to head a new development team in May; added former Dell storage chief Karl Schubert as CTO in June; and brought on former Adaptec Inc. (Nasdaq: ADPT) VP Mike Stolz as marketing EVP in August (see Xiotech Hires Maranti Founders, Dell Storage Chief Joins Xiotech, and Xiotech Rolls Out Drives, New EVP ).

Xiotech claims it had 2003 revenues of $80 million and hopes for $100 million in 2004. It also boasts hundreds of customers for its product line, which includes mostly modular, midrange SAN systems but recently added a Windows-based NAS appliance (see Xiotech Launches New NAS, XIOtech Stresses Simple SANs, and XIOtech Fixes a Failing). But even if Xiotech puts together the necessary ingredients -- growth, profitability, and a respected product line -- Andreoli realizes the game changes after an IPO.“Once you are public, it’s over,” he says. “There’s no mercy. You have to show every quarter that profit is going up, the top line is going up, and you lose a chance for investment.”

Regardless of whether it goes public or not, Xiotech intends to walk down a different path than OEM-centric Engenio and Xyratex. Andrioli won’t rule out any OEM deals, but insists that Xiotech will always predominantly sell its branded systems. The other two sell almost exclusively through OEM partners.

“I would be happy with less than 30 percent OEM business, but we would not compromise our own distribution,” he says. “If we sit down with a three-letter company and they say, ‘We want you to stop selling your branded product,’ we will not do that. If they offer us a new set of customers, that would be perfect because we would not be competing with them. But we don’t have to invent a relationship with guys who take us and squeeze us like a lemon. If the right deal comes, great, but we don’t need it.”

— Dave Raffo, Senior Editor, Byte and Switch