nStor nTertains nTicement

nStor is offered a $12 million lifeline in exchange for 45 percent of the company

June 28, 2001

3 Min Read
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Struggling storage subsystem player nStor Technologies Inc. (Amex: NSO)has been thrown a lifeline, or at least offered one, in the shape of $12 million offer by an undisclosed private investor that wants 45 percent of the company in return. The offer, announced today by nStor, also requires nStor to convert all its preferred stock into common stock, as well as other conditions not disclosed (see NStor Fields an Offer). nStor, a spinoff from Seagate Technology Inc. back in 1996, has until 25 July to respond to the proposal.

And thats not all that’s been going on at nStor this week. The company's CEO, Larry Hemmerich, stepped down on Tuesday, and his deputy, Thomas Makmann, was named president and chief operating officer. Additionally, the board of directors elected its chairman, H. Irwin Levy, as acting CEO. According to a statement issued by nStor, Hemmerich left for personal reasons but has agreed to remain on as a consultant.

So why all the fuss about nStor?

Frankly, the company could be doing a lot better. Perhaps, with a fresh injection of cash (if they accept it) and new management, it stands a chance. At the end of March, nStor reported a first-quarter 2001 net loss of $3.6 million on revenues of $6.2 million, compared with net income of $2.4 million on revenues of $12.5 million for the same quarter a year ago. nStor’s stock closed Wednesday at 0.51 a share, down 8.93% from the previous day's close.

Hemmerich blamed the company’s poor first-quarter earnings on the overall economic slowdown and delayed purchasing cycles, a common complaint of late.nStor’s strength in the past has been disk systems aimed at small businesses and departmental-level applications. It’s also up to its neck in what the industry refers to as “enclosure management” -- basically, the controllers and components built into a storage system that send out alerts when they aren't quite up to snuff. Although a bit arcane, this technology is becoming increasingly important as even small storage systems become more critical in business operations. As these systems grow in importance, so do high-availability features such as those provided by enclosure-management technologies.

More recently, nStor has begun to sell bundled storage area network (SAN) configurations including the SANStor that consists of nStor’s storage subsystems, QLogic Corp.’s (Nasdaq: QLGC) SANBox Fibre Channel switches and 2200 series host bus adapters, and Hewlett-Packard Co.’s (NYSE: HWP) SAN Manager software. According to Makmann, more bundled offerings like this are on the way.

In other words, nStor should be riding the storage networking wave, not dragging along the ocean floor.

Under Makmann things may begin to pick up. He’s spent 30 years in the industry where he has held top management positions in various high tech startups and “turnarounds” in storage hardware and software companies. Previously he was at Hammer Storage Solutions, acquired by Bell Microproducts; Shepherd Surveillance Inc.; Sytron Corp, acquired by Dorado Products; Maxtor Corp; and others.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com

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