What's Up With Sanrise?

A cloud seems to have drifted between Sanrise Inc. and its prospects. Despite being one of the best-funded storage service providers (SSPs) in the market, it has allegedly undergone a restructuring and may be seeking a buyer.

Sanrise made news in May when it raised a whopping $115 million worth of funding (bringing its total to $203 million) from a slew of investors, including Exodus Communications Inc. (Nasdaq: EXDS), Morgan Stanley, and Veritas Software Corp. (Nasdaq: VRTS). But apparently an influx of cash alone wont help Sanrise meet its charter. Several sources say layoffs amounting to roughly half of the company’s 160-odd workforce took place this week.

Sanrise had not returned calls requesting confirmation at press time.

An industry analyst claiming inside knowledge of the company says chief financial officer R. Marshall Case was the force behind the layoffs, which the analyst says primarily affected field engineers. Case, who joined Sanrise this past June (see Sanrise Names CFO), was well known for his belt-tightening regimen as ex-CFO of Exodus.

Other sources say the reports aren’t surprising and that Case can be trusted to know what he’s doing. Sanrise acquired a key tape backup-and-restore business called Datavault from Exodus back in January (see Sanrise Acquires Exodus Unit). Datavault comprises a network of Sun servers that reside in the majority of Exodus data centers worldwide and enable companies to outsource their storage on a global scale. It now forms a key part of Sanrise’s network.”If Case doesn’t know what’s going on with the Datavault business, no one does,” says Tim Wintrip, U.K. sales director for Scale Eight Inc., another SSP.

Other sources say Sanrise is preparing to be acquired. According to one Silicon Valley venture capitalist who requested anonymity, EMC Corp. (NYSE: EMC)and Qwest Communications International Corp. (NYSE: Q) have both expressed interest.

“Qwest’s interested because it’s lagging behind on the storage services front, and EMC wants to take a major Hitachi Data Systems partner off the street,” the source says.

Hitachi indeed has a close relationship with Sanrise. Besides supplying its storage systems, Hitachi also purchased an undisclosed but “significant” stake in Sanrise back in March.

Sanrise isn't the only player struggling in this segment. Even the market leader, StorageNetworks Inc. (Nasdaq: STOR), recently announced a big round of layoffs and major losses (see StorageNetworks: Big Layoff). Many SSPs are rethinking their business models in the face of the overwhelming costs required to set up and maintain worldwide networks of expensive storage systems from the likes of EMC and Hitachi. As an alternative, several are offering alternative software-based networks instead of by-the-book SANs (see SSPs Switch to Selling Software).— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com