Overland Captures Okapi

With its $5 million acquisition of iSCSI startup Okapi Software Inc., tape systems vendor Overland Storage Inc. (Nasdaq: OVRL) is once again changing its complexion as it angles to dive into the disk-based appliance market (see Overland Buys Okapi for $5M).

The 23-year-old San Diego company announced today that it has acquired the startup for $2.5 million in stock, $1.8 million in cash, and $700,000 in assumed liabilities. Overland says Okapi's iSCSI and ATA disk-based technology will allow it to launch its first disk-based appliance in August 2003 (see Okapi Unlocks iSCSI, Okapi Puts iSCSI on Cheap Disk, and Okapi Launches Backup Accelerator). Okapi says it already has three paying customers for the appliance.

"It turns out Overland and Okapi had the same ambition," says John Matze, Okapi's founder, president, and CEO. He says both companies were interested in using disk as a caching mechanism to speed up backups, but to continue using tape for data archiving. "To merge these two companies is a great opportunity."

The technology, which enables users to back up first to disk and then to tape at block-transfer rates, offers significant performance improvements and reduces both backup and restore times dramatically compared with tape alone, according to John Cloyd, Overland's VP and general manager.

"This is the next logical evolution to follow," he says, noting that pure tape-based backup can't stand up to disk on performance. Still, he adds, "You can't leave behind the enormous capacity the tape libraries give you."As part of the deal, Matze will come on board as Overland's CTO. Four of Okapi's six employees have already moved over to Overland as well, Cloyd says. Those employees, who will work in technology, marketing, and sales at Overland, are now based in Overland's headquarters, only 20 minutes south of Matze's house in Poway, Calif., where Okapi was based. (The house was not part of the acquisition.)

Okapi, which did not disclose the amount of its funding, was formed in early 2002 and backed by private investment with the majority of its capital ponied up by Matze, a former Veritas Software Corp. (Nasdaq: VRTS) engineer who briefly served as CTO of iSCSI router startup StoneFly Networks Inc. (see StoneFly Loses a Wing).

One of the sillier gimmicks Okapi tried in the course of its very brief lifespan was a USB key chain that displayed the iSCSI protocol stack. Now if it had been a whistle key chain... that would have been something else!

The concept of storing backup or archive data on low-cost ATA disk drives has rapidly gained momentum, with disk and tape vendors alike clambering for a piece of the action (see ADIC Sticks In Some Disk, Disk Backup's a Red-Hot Idea, and our report on Disk Backup 101).

For Overland, putting on the disk-based stripes of Okapi (a relative of the giraffe native to western Africa) is in line with the company's professed strategy of moving beyond being simply a tape vendor. Last year, the company entered the storage software market by licensing storage resource management software from Astrum Software, which was recently purchased by EMC Corp. (NYSE: EMC) (see Overland Takes Software Route and EMC Sucks Up Astrum)."It sounds to me like Overland is trying to diversify," says Evaluator Group

analyst Randy Kerns. "That's probably a good move. The tape market has a relatively small growth rate... The disk market is growing much faster."

Overland says its entrance into the SRM market contributed to the company's record third-quarter earnings of $56.2 million, or 20 cents a share. It says it hopes this new area of focus will, by 2005, boost revenues even more (see Overland Reports Record Sales for Q3).

Before then, however, Overland says its entrance into the disk-based appliance market will likely dilute its earnings next year by 11 cents a share, 7 cents of which will be in connection with the Okapi acquisition. According to First Call, financial analysts estimate the company will earn $1.02 per share in fiscal year 2004.

Eugénie Larson, Reporter, Byte and Switch