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Crossroads Systems

Like many other companies that came of age during the Internet boom, Crossroads Systems Inc. (Nasdaq: CRDS) is now trying to work off its operational hangovers as it races to stay in front of the storage-router marketplace.

With a planned demonstration later this month of iSCSI-based technology, the Austin, Texas-based Crossroads should add to a recent string of good-news events, which include a reconciliation with major OEM customer Compaq Computer Corp. (NYSE: CPQ).

Crossroads, which manufacturers routers that connect servers to storage-area networks (SANs), is still at least a year away from profitability, and its timeline will be challenged by technical, competitive and market-condition hurdles. This is no doubt the reason for Wall Street's lukewarm opinion of its stock, which has languished below $4 per share since earlier this summer.

Yet even after Crossroads announced a loss of 26 cents per share, on $8.4 million in revenue, for its fiscal third quarter of 2001 (ending July 31), analyst Glenn Hanus of Needham & Co. upgraded the company's stock to a Buy, albeit with a modest 6-12 month target price of $5 per share. Currently, Crossroads has been trading right in the range of its book value, around $2.50 per share.

Hanus and other Wall Street types are likely pleased by the company's growing string of positive announcements, the biggest of which was the renewal of a major OEM deal with Compaq. Compaq, which once accounted for 33 percent of Crossroads' business, decided last year to build its own router equipment, and by the most recent quarter had accounted for just 2 percent of Crossroads' business, according to Crossroads' latest financial statements. Hewlett-Packard Co. (NYSE: HWP) and StorageTek (NYSE: STK) are also Crossroads OEMs.