Xyratex to acquire nStor

Posted on July 28, 2005

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By Dave Simpson

—Xyratex Ltd. today announced that it plans to acquire nStor Technologies in a cash deal valued at approximately $21.2 million. Xyratex is expected to acquire all outstanding shares of nStor for $0.105 per share.

Xyratex officials say the acquisition will round out the company's product line primarily by adding entry-level RAID controllers and management software. (Xyratex defines entry-level as external storage systems with an end-user price of $15,000 or less.) Previously, Xyratex used RAID controllers from Infortrend and had also developed its own controller technology.

nStor sells RAID management software and SCSI, Serial ATA (SATA), and Fibre Channel controllers and subsystems. nStor's key OEM customers include Rackable Systems, Gateway, and NEC.

In a report on the acquisition issued today, Steve Berg, senior analyst at Punk, Ziegel & Co., wrote: "With cash of $67 million and possession of reasonable controller and storage management software, we think Xyratex was already in a strong position. However, if small acquisitions like Oliver Design and nStor help fortify [Xyratex's] technology portfolio for the future, we think this [acquisition] is a mild positive."

Xyratex focuses on the OEM channel with two lines of business: components for disk drive manufacturers and JBOD/RAID disk subsystems for large OEMs. On the components side, Xyratex sells equipment such as servo track writers, production test systems, and disk automation products to drive manufacturers such as Seagate and Western Digital.

On the subsystems side, Xyratex sells to OEMs such as Network Appliance, as well as Acer, BlueArc, Comverse, Concurrent, Data Direct, and SGI. Network Appliance accounted for more than 75% of Xyratex's fiscal 2004 revenues in the array side of its business, according to a report earlier this year from Needham & Co.

Xyratex is an exclusive supplier to Network Appliance, but Dot Hill earlier this week announced in an earnings report that it has signed an OEM agreement with Network Appliance, which would end Xyratex's single-source status with NetApp (although the Dot Hill relationship with NetApp is not expected to ramp up until next year). Dot Hill and Network Appliance officials declined to comment.

In addition to Dot Hill, Xyratex competes primarily with disk array vendors such as Adaptec and Engenio on the OEM front.

Most recently, nStor announced the OneStor series of SAS-based disk systems, which can be configured with SAS and/or SATA drives and SAS (model 5000AA) or Fibre Channel (model 5200FA) host interfaces. The subsystems come with nStor's StorView management software and can scale up to 24TB.

nStor is headquartered in Carlsbad, CA, and Xyratex is headquartered in the UK.


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