SBE 'PyX' Its TOEs

The acquisition by SBE Inc. (Nasdaq: SBEI) of iSCSI software maker PyX Technologies Inc. could be the start of something bigger than both companies.

There's no surprise in the merger. SBE, which makes multiport TCP/IP offload engine (TOE) cards and other kinds of adapters for IP-based gear, announced plans to buy PyX back in March (see SBE, PyX Merge). The surprise is that the two actually pulled it off, given surrounding conditions.

PyX was still in its earliest stages and had just one customer and five employees when it caught SBE's eye back in 2004. PyX specializes in iSCSI target software, which can make a device like a storage array responsive to standard iSCSI servers and other "initiators." While PyX has initiators for iSCSI, too, the company sees more market opportunity competing for OEMs outside of servers, as in the storage market. Last year, however, its only OEM was a surveillance firm.

SBE had more than 35 employees, and its main customers included , Hewlett-Packard Co. (NYSE: HPQ), and . But it had suffered big losses for months when it met up with PyX, despite its forays into voice-over-IP, blade computing, and AdvancedTCA (see SBE Scrapes By, SBE Switches CEOs, SBE Loses $2.3M in Quarter, and SBE Profits Dwindle). As of April 30, 2005, SBE was showing $1.7 million in quarterly revenue, down 43 percent year-over-year.

Despite the odds, about a month ago, SBE's shareholders agreed to spend about $11.8 million in stock for PyX, and the company raised an additional $5.1 million in a private financing round associated with the merger.