Vicom Goes Broke

Virtualization router vendor files for Chapter 11 bankruptcy. What went wrong? UPDATED 05/13 5:30PM

May 14, 2003

3 Min Read
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Virtualization router vendor Vicom Systems Inc. has filed for Chapter 11 bankruptcy protection earlier this month -- but the company says it's still in business and that it actually just came out of a profitable quarter.

The Fremont, Calif., company filed for bankruptcy in the U.S. Bankruptcy Court for the Northern District of California (case no. 03-42605) on May 1, 2003. Samuel Tam, the company's CEO, claims that Vicom will be in a better position to bounce back now that it has filed for bankruptcy.

"As a result of the economic downturn, Vicom is facing a few financial liabilities that prevent viability moving forward," he writes in an email to Byte and Switch. Yep, those pesky accounts payable are getting in the way again.

Continues Tam: "The Chapter 11 process enables Vicom to finish the restructuring while continuing to offer our innovative storage solutions." So it's an innovative but insolvent concern, then.

However, at the same time, he claims that Vicom just had a profitable first quarter of 2003. Tam also says the company's new data migration product is "progressing well," and that Vicom has successfully completed a number of data migrations for Fortune 500 customers; however, he was unable to name those customers.In its bankruptcy filing, the company lists more than 250 creditors, including Arrow Electronics Inc., AT&T Corp. (NYSE: T), Bell Microproducts (Nasdaq: BELM), Ernst & Young, Motorola Inc. (NYSE: MOT), Xerox Corp. (NYSE: XRX), and the Alameda County Tax Collector.

Doris A. Kaelin, an attorney with Cupertino, Calif., law firm Murray & Murray, who is representing Vicom, did not respond to requests for an interview.

Tam says that as Vicom goes through its bankruptcy reorganization, "we intend to continue full sales, service, and operations for our entire range of storage products. We do not expect this transition to affect any Vicom customer, product, or service." [Ed. note: Probably easy to follow through on that one when you have just a couple of users, eh?]

The company developed a virtualization router that it OEM'd to Sun Microsystems Inc. (Nasdaq: SUNW), IBM Corp. (NYSE: IBM), and Hewlett-Packard Co. (NYSE: HPQ). However, Sun has discontinued reselling Vicom's box, and neither HP nor IBM sold a significant number of units.

About one year ago, Tam was pushed aside, and the company's backers installed a new management team. The idea was that Vicom would refocus its energy on OEM deals and emphasize data management features like replication and data migration rather than virtualization per se (see Vicom's CEO Steps Down).As Fred Richardson, Vicom's then newly appointed VP of business development, told us at the time: "We can't be an end-user [oriented] company... It's fruitless to think we could take on the big companies in the storage space... I think we were maybe smoking a little bit of pot, not realizing where our opportunities were."

Pot or no pot, the situation didn't improve for Vicom. Tam returned in November 2002 as CEO, but by then it was too late to save the company from going bankrupt (see Vicom on Life Support?).

"They lost a year when the VCs kicked out Sam [Tam] and brought in their own people, who apparently didn't know anything about storage," says Arun Taneja, founder of the Taneja Group, a consulting group based in Hopkinton, Mass.

Vicom's past investors have included Charter Venture Capital, Goldman Sachs & Co., Pyramid Technology Ventures, The Rahn Group, Sigma Partners, and StorageNetworks Inc. (Nasdaq: STOR).

Todd Spangler, US Editor, Byte and Switch

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