Crossroads Trades Cash for Tech

Crossroads Systems Inc. (Nasdaq: CRDS) and startup NexQL Corp. did a little Texas two-step this week when the Lone Star State companies entered into a technology development agreement. Crossroads pledged up to $2.5 million in funding to NexQL as part of a deal that calls for joint development of database access solutions.

Crossroads CEO Rob Sims said the company would pursue strategic opportunities in 2004 when the company announced its fourth-quarter earnings earlier this month. Sims made good on that promise a few weeks early.

Although Austin-based Crossroads has never earned a profit and forecasts losses for the current quarter, the company finished last quarter with $31.4 million in cash. Sims is using some of that money in hopes of NexQLs technology helping Crossroads pick up market share.

“We’re becoming more aggressive as we pursue our goal for 2004: maintain, gain, and attain,” he explains. “We’re doing well maintaining, but we’re looking at partnerships to help us gain and attain. We’re going out and funding technologies that will drive our strategy.”

In this case, he’s funding an unproven entity. Little is know about NexQL, a Dallas-based startup, except that it claims to be developing high-volume data access hardware and software. Sims sees enough in the company’s potential that he hails it as a good fit for Crossroads’ family of routers for open-system SANs."We’re investing in a complementary technology that will leverage our core competencies for an appliance solution that accelerates data management," Sims jargons.

On the downside, it's going to take awhile for Sims's goal to materialize. He says products won't emerge from the NexQL relationship before 2005.

Meanwhile, Crossroads will seek out more partnerships and relationships in 2004. Crossroads this month announced a cross-licensing agreement with Hitachi Ltd. (NYSE: HIT; Paris: PHA); and its products are resold by Hewlett-Packard Co. (NYSE: HPQ), Storage Technology Corp. (StorageTek) (NYSE: STK), and EMC. It lists Hitachi, Brocade Communications Systems Inc. (Nasdaq: BRCD), McData Corp. (Nasdaq: MCDTA), Cisco Systems Inc. (Nasdaq: CSCO), QLogic Corp. (Nasdaq: QLGC), Emulex Corp. (NYSE: ELX), XIOtech Corp., and Quantum Corp. (NYSE: DSS) as SAN partners.

Although his hiring was met with some skepticism, Crossroads has made financial progress since Sims replaced company founder Brian Smith as CEO in September (see Crossroads Conscripts CEO and Crossroads Cuts Its Losses). In the fourth quarter, the company reported a loss of $317,000 after losing $5.4 million in the same quarter a year ago. Crossroads lost $6.4 million in 2003, down from $25.5 million in 2002.

— Dave Raffo, Senior Editor, Byte and Switch