Overland Sights Startup

Overland Storage Inc. (Nasdaq: OVRL) may be circling startup Rasilient Systems Inc. with an eye to buy.

While the companies won't confirm it, there's persistent talk that Overland's been planning to buy a RAID vendor sometime soon. And signs point to Rasilient.

Let's take it from the top. Overland's survival depends on disk technology. Thanks to its reliance on a dwindling tape market, the company has slashed guidance repeatedly over the last few quarters, and it laid off around 140 employees, or one third of its work force, last September (see Overland Underperforms and Overland to Layoff One Third).

Hence, a new direction, openly discussed by execs and summed up in the company's latest SEC filing: "Our strategy is to leverage our current position as the leader in mid-range tape automation into a similar leadership position in intelligent disk-based backup and recovery appliances." Later in the same report, Overland admits to needing help: "We have limited experience in the development, marketing or sale of disk-based products, and this area is new to many of our personnel."

The stage is set. And there's a precedent: Overland has already acquired one company, Okapi Software, in pursuit of its new life. It shelled out $5 million in 2003 for Okapi, and its first disk-based iSCSI offering, the REO series, emerged shortly thereafter (see Overland Captures Okapi and Overland Ships iSCSI Backup Device).Rasilient has a similar profile. Funding of $4 million in 2003 from Intel Communications Fund and Wu Fu Chen's Acorn Campus could make it a relative bargain (see Rasilient Rustles Up Cash). Considering Overland had just $6 million in cash at the end of last quarter, that's a significant factor.

Another plus: Rasilient's gear, designed for OEMs, is aimed at the low end of the market. Its Rastor 4000 is a 15-drive unit based on SATA drives that features dual iSCSI or Fibre Channel ports and scales to 3.75 Tbytes. Based on Linux, it's a nice fit with Overland's stated aim at a lower-end market.

There's more: Rasilient's gear is manufactured by Taiwan's Inventec Enterprise System Corp., which also makes servers. That fits Overland's preference for outsourced manufacturing with a view to economizing.

So what's not to love? At least one source says that, while a disk buy would be good for Overland in the long run, its investors might balk at any acquisition with no immediate benefit. "If it's dilutive to earnings, investors could react negatively," says Kaushik Roy of Susquehanna Financial Group, who had not heard anything of the possible merger.

Since Rasilient's up and running, the point could be moot. It could be moot, anyway: Rasilient spokesman Ernesto China denies any deal. And Overland director of corporate marketing Julie Reynolds writes in an email that, while entering the primary storage market is a key element of Overland's strategy, there's nothing to report right now.But the two companies appear to be talking. "There may be some interest there," says David Tsang, a cofounder and managing member of Acorn Campus. But he has nothing more definite to say.

Mary Jander, Site Editor, Byte and Switch