Auspex Unleashes a Brat

Auspex Systems Inc. (Nasdaq: ASPX) has jumped on the bandwagon of companies rolling out low-end network attached storage (NAS) products. After years of dwindling market share, the maker of high-end NAS filers is banking on the tactic to improve its market share.

Auspex's new offering is the "brat," a NAS device for small- to mid-sized companies or departments of large businesses (see Auspex's Brat Sits Where It Wants). It includes 500 gigabytes of storage and is expandable to four terabytes.

The brat marks a new strategy for Auspex. This is the first product they’ll sell exclusively through resellers,” says Mike Kahn, chairman of The Clipper Group Inc. consultancy.

"The problem in the past," says Auspex director of marketing Mark Amelang, "was the challenge of selling the high-end products through a third party." The complexity of Auspex's high-end gear made it tough for resellers to do justice to the servers' complex configurations, he asserts.

Amelang says the company's goal now is to increase the visibility of all Auspex products by penetrating new customer accounts with resellers that peddle the brat, which he claims beats all similarly priced competing products in throughput.But even if the new Auspex product is superior, it’s questionable whether the brat can have its way in a rapidly crowding market.

Despite being the originator of NAS products in 1987, Auspex has fallen on hard times in recent years as bigger and better financed companies began grabbing market share. Network Appliance Inc. (Nasdaq: NTAP)and EMC Corp. (NYSE: EMC)now command a huge chunk of the NAS market, while several other large storage and computer vendors have been making inroads.

During its September quarter, Auspex lost 32 cents a share on revenues that plunged to $8.4 million from $16 million for the quarter a year ago. Furthermore, the company had negative gross margins in the latest quarter, a signal that it's been selling its products for less than it costs to make them.

Auspex’s annual revenues have been sliding for several years, from $113 million in 1999, to $82 million in 2000, to $52 million in fiscal 2001, which ended in June. The trend will likely continue for at least the rest of fiscal 2002. Joel Achramowicz, of Investec PMG Capital, the only brokerage firm still following the company, predicts revenues for the year ending June 2002 will drop to $41 million but will climb to $90 million the following year.

That is, if the brat gets its way. Auspex still has $64 million in cash, or $1.40 a share. This cash position looks enticing, as the stock is hovering at $1.78 a share. But Auspex incinerated $16 million cash in the last quarter -- a burn rate that sends smoke signals that the next few quarters could leave its bank accounts scorched. At the current rate, the company would either be forced to raise more money or go broke within the next year...Unless the brat can raise a ruckus and bring in enough new customers to make it all worthwhile.

— Tom Davey, special to Byte and Switch, http://www.byteandswitch.com