BlueArc Files for IPO

Comments

If there is one company that could - or will have to - buy BlueArc, it's Hitachi Data Systems. They are in OEM relationship since November 2006 with an initial term of five years and since extended to July 31, 2013.

HDS contributed 38% and 45% of BlueArc's revenues in the three months ended May 1, 2010 and April 30, 2011, respectively, without other customer accounted for 10% or more in either period. HDS accounted for 22%, 30% and 41% in BlueArc's fiscal 2009, 2010 and 2011, respectively. HDS even put some money in BlueArc ($1.5 million for certain R&D projects) last year but didn't make an offer - as far as we know - to get the entire company.

But the subsidiary of Japanese giant Hitachi always was reluctant to spend more than tens of millions of dollars to acquire a storage company. Up to now HDS did only small acquisitions: Comstock Systems in 2002 and Archivas in 2007, each one for $20 million, and also some IP of Parascale in 2010. The Japanese companies prefer to sign agreements to get technologies in storage subsystems and software - but it's not the case for components (Hitachi bought IBM HDD as much as  $2,050 million in 2002).

Mainly EMC, but also IBM, Dell or even NetApp are ready to complete their portfolio by some big acquisitions. Not HDS, one of their main competitors.

Consequently, BlueArc, that needs more money to pursue its activity, is trying for the second times an IPO for an offering supposed to be up to $100 million and plans to list on the NYSE under the symbol BLRC. That's a small sum for the company's investors. Since its inception, the company has raised $224 million, a huge amount for a storage start-up, furthermore never profitable and expecting this trend to continue. As of April 30, 2011, its accumulated deficit was $230.3 million, for cash and cash equivalents of only $16.1 million.

It withdrew in 2008 an IPO filing that was expected to bring in $103.5 million for further R&D.

BlueArc is known for its excellent technology for high-end clustered and scalable NAS with massively parallel architecture and proprietary SiliconFS file system, but is battling with the biggest names in the storage field.

BlueArc was founded in 1998 in Bracknell, England and relocated one year later its corporate headquarters to San Jose, CA, being incorporated as a Delaware corporation under the name Synaxia Networks, Inc., and changing its name to BlueArc Corporation in January 2001.

BlueArc has now 296 employees in offices across North America, Europe and Australia including 115 in sales and marketing, 106 in R&D, 44 in support and services and 31 in finance, administration and operations.

It currently has 750 customers worldwide and has deployed 2,000 storage systems, mainly in media and entertainment industry. Apart HDS, it has agreements with 140 VARs and other channel partners.

One weakness is that it relies on a single contract manufacturer, Sanmina-SCI, to manufacture and assemble its storage systems.

The firm has five issued U.S. patents, four issued foreign patents, 14 U.S. pending patent applications and 16 pending foreign patent applications. But from 2003 to 2006, it was obliged to defend - and ultimately prevailed - an intellectual property infringement claim that was brought by NetApp.

President and CEO Mike Gustafson, 44, was formerly senior VP of marketing and sales at McData. He got total compensation of $520,314 for fiscal 2011.

After the most recent successful IPO of Fusion-io getting net proceeds of $223 million, there is maybe a chance to see Wall Street finally encouraged by storage companies, even for one of them with big competitors and for which profitability was always an issue.

            Fiscal Financial Results
  (year ended January 31, in $ millions)