nStor Sells Subsidiary

nStor Technologies Inc. (Amex: NSO) has sold off one of its two subsidiaries, making its SAN array business its primary purpose (see nStor Sells STI Subsidiary).

nStor Technologies is the parent of telecom management software and services firm Stonehouse Technologies Inc. (STI) and of nStor Corp., a maker of Fibre Channel and SATA disk systems geared to the SMB market. The odd two-headed arrangement has been losing money for years, but nStor Technologies now has arranged to sell STI for $6.7 million ($5.6 million cash and $1.1 million in promissory notes) to Symphony Services, a technology software development and outsourcing company.

The sale, which still needs shareholder approval but is expected to close by the end of this year, hints that nStor Technologies sees its future in storage networking, not telecom management software.

It's a direction that wasn't so clear a couple of months back. In March and April 2004, management indicated there were plans to sell the storage division, which accounts for over half of nStor's sales (see NStor May Go Solo and A New Ripple for nStor).

What changed? nStor execs didn't respond for comment at press time, and it's just possible that a buyer for STI turned up at the right time. Notwithstanding, storage has been doing fairly well: In its latest earnings report, nStor shows that for the six months ended June 30, 2004, total storage sales of $7.8 million were up 52 percent year over year. STI revenues were up 53 percent for the same period.nStor has also put some effort into storage, making partnerships with companies like Atempo Inc. a priority (see Atempo, nStor Synch Up). Since April, the board's also hired a new CEO (Todd Gresham), COO (Steve Aleshire), and executive VP of marketing and alliances (Lisa Hart). In a recent Securities and Exchange Commission (SEC) filing, the parent company indicates the management changes have cleared the main obstacle to success for nStor's storage subsidiary -- in the board's view.

nStor will need solid product growth, because the sale of STI alone won't solve its financial woes. For the six months ended June 30, its net loss was $3.9 million, or $.02 per common share, compared with $3.2 million, or $.02 per common share in the same period of 2003.

Furthermore, nStor reported negative working capital of $12.2 million on June 30. And even with more than $5 million in net cash proceeds expected from the STI sale, the firm expects a loss of $2.3 million from discontinued operations. Clearly, the firm's financial problems are far from over.

Still, the parent seems willing to cast its lot with storage networking, banking on sales of its nStor controllers and SATA gear (see Report: SATA & SAS to Share Systems). The result should speak not just to nStor's judgment, but the direction of the industry as well.

Mary Jander, Site Editor, Byte and Switch0