Engenio IPO Hopes Revived

A record revenue quarter and year for Engenio Information Technologies Inc. could put its IPO plans back on track.

Engenio, LSI Logic Corp.s (NYSE: LSI) storage subsystems subsidiary, bounced back after a dismal third quarter that relegated its 2004 plans of going public to the backburner (see LSI Stands By Storage).

But Engenio’s revenue last quarter grew 32 percent sequentially, from $97 million to $127 million. Annual revenue for 2004 rose to $452 million from $426 million in 2003. The subsidiary represented 30 percent of LSI Logic’s revenue for the quarter and 27 percent for the year.

All this may cause LSI Logic to pull its plans to spin Engenio into a public company. The IPO was targeted for last spring but got pushed back in July after underwriters priced shares and found them well below their target range (see Engenio Gets Cold Feet). Those plans fell dormant after both Engenio and LSI experienced a rocky third quarter.

So what will it take to revive hopes of going public? No LSI executive broached the IPO on the company’s earnings call yesterday, but one financial analyst says it will probably require at least another quarter to regain the confidence of investors.

“It was a really solid rebound, and puts the IPO back on track, but I don’t know if it’s enough time yet after a losing quarter,” says Steve Berg of Punk Ziegel & Co. “I think that the market would prefer they were more consistent, not as up and down.”As a supplier to OEMs, Engenio’s performance depends on how well its partners sell its systems. Two partners worth watching are IBM Corp. (NYSE: IBM) and Sun Microsystems Inc. (Nasdaq: SUNW). Most of Engenio’s revenue comes though IBM, and Engenio added an OEM deal with Sun in late 2004 (see Engenio's Sun Rises).

IBM resells Engenio as its midrange DS4000 SAN system, but recently added its own midrange system, the DS6000 (see IBM's New Shark Tale and IBM Still Loves Engenio).The DS4000 was a strong seller for IBM last quarter, but that could change when volume shipments of the DS6000 begin in March (see IBM Denies Slipped Ship Date).

“We had our biggest IBM quarter ever,” Engenio CEO Tom Georgens says. “Momentum around the product appears strong and IBM has made public statements about future add-ons to the DS4000 family.”

As for Sun, Georgens says the StorEdge 6130 midrange system it gets from Engenio just started shipping in November and it’s too soon to anticipate significant revenue. But the Sun relationship goes beyond the 6310. Engenio will co-develop future Sun products, and 40 Sun engineers joined Engenio as part of the deal.

Overall, LSI Logic reported $420 million in revenue last quarter, which is up 10 percent sequentially although still down 9 percent from last year's same-quarter revenue. The company reported net income of $15 million or $0.04 earnings per share (EPS), down from $25 million or $0.07 year-on-year, but up from a loss of $25 million or $0.07 last quarter.LSI Logic’s revenue for the year was $1.7 billion, compared to $1.69 billion in 2003. Its 2004 income of $43 million or $0.11 EPS was up from a loss of $16 million or $0.04 EPS in 2003.

— Dave Raffo, Senior Editor, Byte and Switch