Crossroads Crosses Off 20%

Cuts staff after dropping $3 million last quarter

March 12, 2005

3 Min Read
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Crossroads Systems Inc. (Nasdaq: CRDS) will lay off around 20 percent of its staff while the company waits to see revenue from its backup appliance and database monitoring products (see Crossroads Reports Financials).

Crossroads CEO Rob Sims said Thursday night the company will lay off around 23 of 115 employees as the Austin, Texas-based company diversifies from its traditional storage router business.

This isn't the first layoff for the company. Crossroads laid off 10 percent of its staff in October 2001 (see Crossroads Furloughs 10%). The current layoff will impact all departments, Sims says. And as before, the measure is aimed at cost cutting.

The major initiative that we have undertaken to control expenses is the restructuring,” Sims told analysts on a conference call. “This delay in topline growth is primarily why it is important to restructure our storage business.”

The reduction comes after losses widened last quarter. Crossroads lost $3 million or $0.12 per share last quarter compared to a loss of $2.5 million or $0.10 in the previous quarter and $1 million or $0.04 in the same quarter last year. Total revenue of $4.7 million for last quarter dropped 27 percent sequentially from $6.6 million and 30 percent from $7.1 million in the same quarter last year.Crossroads’ main revenue streams come from OEM and licensing deals. EMC Corp. (NYSE: EMC) and Storage Technology Corp. (StorageTek) (NYSE: STK) resell Crossroads connectivity devices, and Hewlett-Packard Co. (NYSE: HPQ) licenses Crossroads technology for routers HP manufactures (see EMC Resells Crossroads FC Router, StorageTek Intros Storage Router, and HP Turns at Crossroads).

Last quarter, Crossroads received no revenue through EMC, and HP license revenues declined sharply.

Crossroads’ future revenue hopes rest largely with new products such as the Data Mover backup appliance and its StrongBox family of database monitors announced last month (see Crossroads Ships StrongBox and Crossroads Heads Down New Road). The company's also developing iSCSI-to-Fibre Channel routers (see Crossroads at the Crossroads). It will take awhile to realize revenue from these products, and Sims did not give a financial forecast for this quarter.

While StrongBox and other database monitoring products (coming from a $2.5 million investment by Crossroads in NexQL Corp.) will sell direct, Sims says Crossroads won’t abandon its OEM model (see Crossroads Trades Cash for Tech). Data Mover is going through OEM evaluations now.

Sims stresses the need for success in the OEM channel. “The storage market is akin to professional baseball,” he says. “In storage, there are only a handful of major league teams. And it is those teams that truly drive what the end user adopts. The function of minor league teams like Crossroads is to source players to as many major league teams as possible. Our role is to feed the market through the major league OEMs.”If Crossroads doesn’t start sourcing some valuable players soon, it might get called out on strikes.

— Dave Raffo, Senior Editor, Byte and Switch

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