MTI Gets Collective

Not all recent mergers in the storage market involve suppliers. MTI Technology, a storage consulting firm and EMC integrator, took a key step in its own empire-building plan this week.

MTI, which has 315 employees and headquarters in Irvine, Calif., announced plans to purchase Collective Technologies, an IT consulting and integration firm of about 132 employees based in Austin, Texas. The purchase includes $6 million in cash and another $6.4 million in stock, warrants, and notes. (See MTI to Acquire Collective.)

MTI execs haven't decided whether all Collective employees will stay with the new company, or what the potential opportunities will be -- or won't be -- for Collective's management team.

MTI CEO Tom Raimondi says the deal is part of a plan to strengthen MTI's identity as a systems integrator, a kind of Accenture for enterprises in the $100 million to $1 billion revenue range. "The market for services is strong and growing," he says. "Our whole model is evolving into an SI, not a VAR... Our sweet spot is to be a total solutions provider. The audience we are targeting is wanting a high-calibre SI."

Clearly, MTI no longer wants to be perceived as simply a VAR for EMC, an identity the company forged back in the 1990s. Though it started life as a maker of its own storage equipment, principally RAID gear, MTI sold 20 of its technology patents to EMC in 1996 in a royalty- and license-sharing arrangement that helped solidify a longstanding relationship. By 2003, MTI management decided to quit selling its own gear and focus solely on EMC resale and consulting services. (See MTI Halts Its Hardware.)This was slow to help the bottom line. MTI suffered a series of losses and had to turn to venture firm Advent International -- and to EMC -- for additional funding. (See MTI Raises $20M, MTI Posts Q1, and MTI Loses Money, Expands.)

These measures appear to have paid off. The company's latest report shows a modest net income of $333,000 for the fourth quarter of fiscal 2006 against a backdrop of $43.9 million in revenues, an increase of 23.5 percent year-over-year and 9.3 percent sequentially. Full-year 2006 revenues were $155 million, up 16.9 percent year-over-year. (See MTI Announces Results.)

MTI continues to benefit from its EMC relationship. In the third quarter of 2006, the firm gleaned 82 percent of its revenue -- about $25 million -- from sales of EMC hardware, chiefly Clariion boxes.

But an 11.6 percent year-over-year drop in services revenue for fiscal 2006 is a red flag. MTI needs to extend its range of expertise beyond EMC and storage if it means to expand its business -- particularly given EMC's aggressive promotion of its own services capabilities. (See EMC Pushes Service Horizons.).

Enter the Collective purchase, which should fuel services growth beyond EMC and storage alone. "Collective has more standalone consulting on the design side," Raimondi says. "They are not infrastructure-specific... This broadens our overall umbrella." Collective has expertise in Microsoft systems and software, virtualization, clustering, and database technologies, he notes.This doesn't mean Raimondi repents hitching MTI's wagon to EMC's star. "If we started selling Hitachi, HP, and others too, nobody would open the kimono up and treat us as though we were family."

MTI faces stiff competition. In storage consulting and implementation, it has long competed against the likes of Datalink, Glasshouse, and SANZ. It's also come up against the storage service arms of HP, Hitachi, IBM, NetApp, and Sun.

With a claimed 3,500 customers, MTI appears to be holding its own. Raimondi says MTI will continue to carve out its niche with midrange enterprise IT customers by delivering more comprehensive services than regional VARs.

He acknowledges it could be tough. "We are still perceived to be a bit on the boutique side. We need to build brand recognition as a highly skilled organization at the right price."

At the same time, he's not terribly worried. With 20 years in the business and a firm foundation with an enterprise hardware leader, MTI seems to have as good a shot as its smaller rivals.Mary Jander, Site Editor, Byte and Switch

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