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2005 Top Ten: On the Hot Seat
Winter's here, but the heat's turned up a bit higher in some boardrooms
December 30, 2005
9 Min Read
No storage company has it easy these days, but face it -- a select few have it a lot harder than others for reasons that are usually their own fault.
Whether its because of acquisition, new management, poor sales, accounting problems -- or all of the above -- some companies face greater challenges than others. As we get ready to enter a new year, it’s time to highlight the storage vendors facing the biggest challenges in 2006.
First, let’s congratulate ADIC, BlueArc, Emulex, Engenio, Hewlett-Packard, and Tacit Networks for escaping the list after winning spots on it last year. (See 2004 Top Ten: On the Hot Seat.)
Here’s this year’s list of storage companies facing at least a few uncomfortable quarters ahead in the new year:
No. 10: Symantec Corp.
Symantec CEO John Thompson can now attest that merging multi-billion dollar companies is no picnic. Revenues for Symantec’s security products and Veritas’ backup products disappointed in the first full quarter after the companies integrated. Greg Myers and COO John Schwarz left not long after the $13.5 billion acquisition closed. Wall Street analysts wonder if Symantec’s $145 million accounting error disclosed in December is a carryover from the accounting problems that plagued Veritas before the acquisition. Expect Symantec to straighten out its sales and accounting problems in 2006, but these are challenging times for the software giant.
See Kicked Upstairs
See Symantec CEO Opens Roadmap
No. 9: Iron Mountain
Its name screams archiving, but the company best known for its trucks, warehouses, and shredders is looking to broaden its portfolio with the addition of backup services. That was the driver behind Iron Mountain's $50 million acquisition of LiveVault earlier this month, a managed services company that's tapped into business users' desire to essentially outsource the whole backup mess.
It's a competitive market segment, with Amerivault, Arsenal Digital, and Evault playing equally hard against one another. To varying degrees they rely on licensing revenue from larger vendors. LiveVault, for example, has such deals with Hewlett-Packard and IBM, and it's unclear whether or not those will continue under LiveVault's new ownership. Iron Mountain's challenge then is two-fold: Retain that licensing revenue; and get its existing customers to pony up for additional services that don't require a truck roll-just some automation software for copying big bytes safely offsite.
No. 8: BakBone Software
Last January BakBone CEO Jim Johnson sent an open letter to shareholders saying it could be five months before the backup software vendor straightened out its accounting problems. That seemed like a long time, considering the company first revealed its problems in May 2004 and the Toronto Stock Exchange halted trading of its shares in December. Nearly another year has passed since that first letter, and Johnson issued three subsequent open letters saying BakBone was close to finishing its accounting review. Still, it hasn’t completed its restatement after 19 months, and it’s been relegated to trading on pink sheets since February.Give BakBone credit for moving forward on the product front with upgrades and adding replication capabilities through an acquisition of Constant Data. But if it is to make any meaningful progress while competing with the likes of Symantec and EMC, BakBone needs to get its books in order fast.
See Unknown Document 86178
See F5 Extends Application Manager
No. 7: MaXXan Systems
It’s awfully lonely being an intelligent switch startup these days. In the last 15 months, Sandial and Maranti shut down, and Troika Networks was acquired by QLogic. That leaves MaXXan as the last man standing. Interim CEO Ray Kao and new president Nelson Bye are trying to diversify the startup’s products, moving into virtual tape and encryption as well as storage virtualization. But can it do all these things well?
See MaXXan Plans Midrange Muster
No. 6: Intransa
How many dedicated IP SAN system vendors can the industry support? If the answer is two or less, Intransa could be the odd one out. Intransa lost its momentum to EqualLogic and LeftHand this year due largely to a management shuffle. Now the new team led by CEO Thomas Alexander needs to find a way to make up lost ground, perhaps by partnering with Fibre Channel vendors.No. 5: Overland Storage
CEO Chris Calisi’s plan to transition from a tape company into a disk vendor accelerated in August. That’s when HP said it would end its tape library OEM deal with Overland, a partnerships that accounts for most of Overland’s revenue. Calisi spent the rest of the year fending off acquisition advances from ADIC, buying startup Zetta Systems to bolster his disk-backup family, and boldly announcing he’s ready to take on NetApp as a primary storage vendor.
See Overland Loses HP OEM Deal
No. 4: Adaptec
CEO Bob Stephens quit in June after a year-long sales slump, the $100 million acquisition in 2004 of Snap Appliance didn’t work out, and now the systems division -- which includes Snap products -- is up for sale. Sundi Sundaresh, who was CEO of intelligent controller startup Candera when it sunk in late 2004, is back to reverse Adaptec’s misfortunes. The turnaround plan consists of two words -- SATA and SAS (serial attached SCSI).
See Adaptec AgonistesNo. 3: Sun Microsystems
So what exactly do you get for $4.1 billion? That question has been on the minds of shareholders and customers of Sun Microsystems Inc. since it bought up StorageTek in August. With any luck the vendor will get a chance to answer it definitively in 2006.
The burden of proof will be high, given that StorageTek’s tape arsenal isn't exactly the leading edge of storage today. Still, Sun gave it the old razzle-dazzle at its customer event in November, with a new tape drive offering 256-bit AES encryption that the vendor promises to extend across its entire product line. Sounds great, but crypto is a hard sell these days -- just ask the salespeople at NetApp and MaXXan. Sun’s attempt to capitalize on user desire for more automation may yield more immediate results than encryption.
Sun has also been an ardent champion of grid computing, pushing initiatives, and underwriting grants to make the technology less conceptual and more practical. To be fair, grid is finding a home among some enterprises, having transcended its early home among university and R&D networks. But we don't think most companies consider grid strategic in the way they do their mail servers or firewalls. If Sun could let go of the idea of goosing its server sales, it might find a wider berth in the storage market.
No. 2: McData Corp.
At the end of a disappointing 2004, McData CEO John Kelley pointed ahead to brighter days in 2005. He pinned McData’s rebound hopes mostly on its new i10K director and 4-Gbp/s Sphereon switches. This was going to be the year when technology acquired from Nishan Systems and Sanera Systems in 2003 would pay dividends for McData.Well, the rebound never came. The i10K has been troubled by lack of qualification from McData’s largest OEM partner, EMC, and manufacturing problems. The 4-Gpb/s switches were late, finally shipping in September -- around 10 months behind Brocade -- and McData still has no 4-Gpb/s directors. McData revenues got a boost from its acquisition of CNT Networks this year and its new Sphereon switches are selling, but it still failed to hit its targets in the third quarter.
Executive turnover also continued. CFO Ernie Sampias and SVP of engineering Jean Becker left after the CNT deal closed in June. Kelley hired Todd Oseth from EMC as COO and we assume Oseth is doing something, but he’s been kept out of the public eye. Perhaps the best thing going for McData now is the problems experienced by its rival Brocade.
No. 1. Brocade Communication Systems
Brocade never escaped the whiff of scandal revealed in January when CEO Greg Reyes left following completion of an internal audit that led to a Department of Justice investigation into the way Brocade handled stock options from 2001-04. CTO Jay Kidd left in November to join Network Appliance, and CFO Tony Canova resigned last week after finishing earning restatements necessitated by the options situation.Meanwhile, whispers continue about Brocade’s future. Is it up for sale? Will it finally merge with McData? Will it go private? Sales are down and there’s no end in sight to the DOJ investigation. On the plus side, Brocade remains the Fibre Channel switch market leader. Now a new management team led by Reyes’ successor Mike Klayko and new CTO Dan Crain will try and restore public confidence as Cisco continues to pressure Brocade and McData.
See Brocade Switches CEOs, Restates
— Dave Raffo, Senior Editor, and Terry Sweeney, Editor in Chief, Byte and Switch
Organizations mentioned in this article:
Adaptec Inc. (Nasdaq: ADPT)
Advanced Digital Information Corp. (Nasdaq: ADIC)
BakBone Software Inc.
BlueArc Corp.
Brocade Communications Systems Inc. (Nasdaq: BRCD)
Emulex Corp. (NYSE: ELX)
Engenio Information Technologies Inc.
Hewlett-Packard Co. (NYSE: HPQ)
Iron Mountain Inc. (NYSE: IRM)
Intransa Inc.
MaXXan Systems Inc.
McData Corp. (Nasdaq: MCDTA)
Overland Storage Inc. (Nasdaq: OVRL)
Sun Microsystems Inc. (Nasdaq: SUNW)
Symantec Corp. (Nasdaq: SYMC)
Tacit Networks Inc.
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