Xiotech Gets Funding For Seagate Technology Acquisition

Xiotech, a Fibre Channel and iSCSI storage vendor based in Eden Prairie, Minn., said it completed an investment round of over $40 million, led by Steve Luczo, chairman of Seagate Technology. Luczo was also elected to Xiotech's board of directors.

The investment was raised specifically to fund the ASA group acquisition and bring its upcoming technology to market, said Casey Powell, president and CEO Xiotech. "The best technology in the world won't do anything until you turn it into a product and bring it to market," Powell said.

Xiotech on November 6 said it acquired Seagate's ASA group, which includes certain assets, about 100 people, and a license to related technology. Terms of the deal, including funding sources, were not disclosed.

Powell said that Xiotech had been working with Seagate on developing the ASA group's technology for some time when Seagate decided to divest itself of the technology to focus on its core business. "We said, whoa, we'll buy it," he said. "They said, you have the money? We said we'll get it."

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Xiotech got ahold of the money with the help of Luczo, who heads a company with which it has had a long and intertwined relationship. In 1999, Seagate acquired Xiotech for $360 million. In 2002, it then sold 80 percent of Xiotech to an investor group.

Powell would not discuss details of the technology, other than to call it "disruptive" and that it should be ready for market sometime during 2008 or 2009. However, as reported in ChannelWeb earlier, speculation in the channel about the technology revolves around "storage bricks," a technology said to have been in development under Steve Sicola, general manager of the Seagate ASA group, will now become CTO of Xiotech.

Storage bricks can be thought of as a group of hard drives packed with a controller and cache that serve the same purpose as hard drives but with their own intelligence. Storage bricks would allow data portability and flexible management and maintenance.

Xiotech is no stranger to acquisitions. Early last year, Xiotech acquired Daticon, a Norwich, Conn.-based provider of litigation support and document conversion services, on the same day that Daticon filed for Chapter 11 bankruptcy.

Powell is known for acquiring companies to expand Xiotech's business beyond its traditional storage array business, said one solution provider who asked to not be identified. "They've done well around here, but mainly with their existing customer base," the solution provider said. "But business has dropped a bit. The Compellents hurt them a lot. So do the EqualLogics, the Network Appliances, the EMCs."

Xiotech in general has had a good storage offering over the years, the solution provider said. However, the vendor has backed it up with a very bad channel program. "Margins are low," the solution provider said. "And while I respect some of their sales reps, they don't hesitate to take a deal if they feel we're not moving fast enough. They've visited us and talked about beefing up the channel, but so far it's been a shallow move."

It is a shame that a solution provider would feel that way, Powell said. "We're dedicated to the channel," he said. "Not exclusively. But in a balanced way. Depending on the last transaction, someone likes you, or they don't like you. It's a tough business."

Having the right balance between direct and indirect sales is important to any vendor, Powell said. "The balance of direct vs. indirect is very important to us," he said. "I don't think it's a good idea to have an exclusively direct focus any more than I feel it's a good idea to have an exclusively indirect focus."