Xiotech: 'We're Out of the Red'

Xiotech Corp. CEO Casey Powell says the SAN systems vendor broke even last quarter following a restructuring in April, and he forecasts turning a profit this quarter (see Xiotech Regroups).

Powell, stung by claims that a layoff of one-quarter of the companys work force was a sign of trouble, says those moves were necessary but stops short of admitting Xiotech was in bad shape.

“We made a lot of very strong moves here, some of which may have been misinterpreted,” Powell says. “Companies that are healthy make these moves all the time. Unfortunately, companies that aren’t healthy do it, too. And it might be hard to tell the difference.”

Powell still doesn’t give out the numbers of the April layoff, although sources say the Eden Praire, Minnesota-based firm cut around 100 of its 400-person staff. The CEO does say the company closed its Rochester, Minn. development center, beefed up its development center in Hyderabad, India, and replaced its entire sales management team.

“We’ve had significant turnover,” he says.Despite the cuts, Powell says Xiotech boosted sales last quarter and is on pace for around $100 million in revenue this year -- up from an estimated $90 million last year, when the company continued to lose money.

If Xiotech is to succeed long term, it must find a way to compete successfully as a midrange and low end storage vendor against the likes of EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Network Appliance Inc. (Nasdaq: NTAP). Powell acknowledges the problem without revealing a specific strategy for success, except to say Xiotech is focused on the lower end of the midrange and the SMB space.

“There’s two ways to be at the head of the parade,” he says. “You can be at the head of the parade you’re in -- which is hard to do when you’re a $100 million company and your competitor’s a $10 billion company -- or you can start your own parade.” When asked where the Xiotech parade would march, Powell says, “I would say it is an opportunity that has not yet been identified by others.”

In a strategic departure from his predecessor Alain Andreoli, Powell is no longer looking to acquire software companies. Andreoli picked up $5 million from Xiotech’s main investor, Oak Investment Partners, earlier this year to use on acquisitions. “That’s no longer in the works,” Powell says. “Acquisitions are hard to do. Well, the acquisition is easy, but putting two organizations together is extremely difficult.”

Of course, an optimistic-sounding CEO isn’t new to Xiotech (see Xiotech Ponders Public Path). Last November Andreoli talked of achieving enough growth to explore an IPO in 2006. Three months later, he was gone (see Xiotech Swaps Out CEO).Powell took over helm at Xiotech in February, and took out his axe two months later. “What I found when I got here was it certainly wasn’t a company in trouble, but it was a company that had some trouble that needed to be fixed,” he says. “Number one, we needed to refocus on some business fundamentals and that’s not code for anything. It’s probably a good label for a bunch of things that needed to be addressed.”

— Dave Raffo, Senior Editor, Byte and Switch