Storage Computer Turnaround Stalled: Page 2 of 3

Storage Computer picked up the CyberBorg and CyberNAS products via its acquisition of CyberStorage, a year ago. They remove the routing layer currently required to connect a SAN to the wide area network, enabling the device to reside directly on an optical loop. Storage Computer claims that to do this using EMC Corp. (NYSE: EMC) and Nortel Networks Corp. (NYSE/Toronto: NT) equipment would cost millions and that its solution achieves the same thing at a fraction of the cost (see Storage Computer: Fighting Talk).

Gross margins were 22 percent for the quarter, compared to 52.7 percent for the same quarter a year ago. The company attributes the decrease to increased factory costs, including a new quality assurance program and higher technical service expenditures, both of which have been implemented in anticipation of increased sales growth.

”It’s probably overkill as internal QoS programs go,” says Viegut. The products come out of engineering and go into another group that does nothing but hammer and test and supply information back to engineering, he said. “When we go into beta, others would be going for market entry." The company has also put in place a nationwide technical service support team.

Since the acquisition of CyberStorage, Storage Computer has upped its headcount by 40 to 50 people. And in advance of the sales growth it keeps talking about, it has decided to keep all of them. “This increase continues to impact our short-term costs,” says Hood. The decision not to reduce headcount in tough times seems strange to some and contrary to the current trend for laying off staff to curb costs.

”We are gearing up for the revival of our company,” says Hood. “There’s no guarantee this is going to happen, but the current backlog of orders shows potential.”