High-end disk array vendor is spending now to bolster its future product line

August 30, 2001

3 Min Read
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Can a bit player in the high-end storage subsystems market make it to the big time in storage-area networking? That's the role Ciprico Inc. (Nasdaq: CPCI) is eyeing as it expands its product repertoire.

But it may take some time for the company's story to unfold, given both the technological and market hurdles it faces as it moves from the world of providing disk arrays and hardware RAID bundles (for high-end applications like streaming video) to the more complex fields of storage-area networking software and network-attached storage products.

Combined with the current down market for overall IT purchasing, it's no surprise that Ciprico's stock (currently trading at about $7 per share) is still rated as a Hold by analysts covering the firm. The most recent report on Ciprico from Needham & Co. notes some positives, such as advanced products in the development process. But until those products gain traction a time expected not to be sooner than the middle of next year – Needham says it will retain its Hold rating.

Still, since Ciprico's current market cap is almost equal to the cash it has on hand (about $33 million), there's not much potential downside for new investors. Robert Kill, Ciprico's CEO, says the Minneapolis-based company expects to be "cash-negative" for the remainder of its fiscal 2001, as it invests heavily in R&D to beef up its SAN and NAS capabilities.

Ciprico's current revenues are generated by products like the NETarray 1000, a Fibre Channel disk array that the company claims can support up to 15,000 I/Os per second, with sustained data transfer rates up to 200 Mbytes per second. The NETarray 1000, Ciprico says, can support four to 10 drives per enclosure, and up to 100 drives in a standard telecom rack.While Ciprico will continue to sell its disk arrays to its historic markets of entertainment and military customers, Kill says the company sees its future growth coming mostly from the enterprise corporate streaming market, which currently exists mostly in slideware and trade-show discussion panels.

According to Kill, "there's nobody out there" providing turnkey networked storage management systems for the corporate streaming-data market, making it even harder for a small firm like Ciprico to find OEM or reseller partners.

"There's really no clear channel" for enterprise streaming-data sales, Kill says. But in anticipation of such a market, Ciprico has made some R&D moves to increase its SAN and NAS expertise.

In February, Ciprico spent $600,000 to purchase the SANstar network-connected storage management software system (and the engineering team behind it) from based ECCS Inc., of Tinton Falls, N.J., which recently changed its name to Storage Engine (Nasdaq SmallCap: SENGC).

According to Kill, the former ECCS engineers are experts in file-system and real-time recovery systems, features Ciprico plans to implement in products scheduled for release early in 2002.For the company's third fiscal quarter of 2001 (ended June 30), Ciprico said it had $9.5 million in revenues, a decrease of 3 percent over the like quarter from 2000. Costs relating to layoffs earlier this year and the ECCS purchase pushed the company to a quarterly loss of 17 cents per share and a loss of 38 cents per share for the 2001 fiscal year to date. For the nine months ended June 30, Ciprico had sales of $27.9 million, 13 percent higher than the $24.8 million it recorded for the like period in fiscal 2000.

Analysts expect Ciprico to continue to post losses, with Needham predicting that it will take at least until Q4 of 2002 for the firm to return to profitability. In the meantime, Ciprico will mine revenues from current contracts, including a recent multiyear deal with the U.S. Navy's Space and Naval Warfare Systems Command.

What Kill wants is for his company to be among the first to provide "SAN performance and NAS simplicity" in an easily deployed "digital media appliance." By mentioning support for protocols like iSCSI and Infiniband, it's clear Kill knows the lines required to compete in the current and future SAN stage. The challenge, as always, is finding customers willing to listen.

— Paul Kapustka, Editor at Large, Byte and Switch

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