In the burgeoning and competitive data storage business, where heavyweights like IBM Corp., Compaq Computer Corp., EMC Corp. and Network Appliance are vying for domination, little-known Troika Networks is turning heads.
The Westlake Village startup isn’t competing against the higher-profile storage system providers. It’s offering them something tantalizing: host bus adapters (HBAs) and storage management software using Fibre Channel architecture.
More simply, Troika offers technology that helps data flow freely between servers and other parts of storage area networks (SANs).
With the explosive growth of digital content, reliable and hassle-free storage solutions are in demand, Internet downturn or not.
The Fibre Channel HBA market is expected to hit $4.25 billion in 2005, up from only $540 million in 2000, according to an advisory recently published by Gartner Dataquest.
Revenue for the market is expected to be about $810 million this year, growing to $1.14 billion in 2002.
It’s a market that hasn’t escaped the notice of nearly all the major computer companies. In separate statements released during the past year, Dell Computer Corp., Sun Microsystems, Compaq and IBM have said they will be increasingly storage-focused, joining a range of storage providers led by EMC, Qlogic Corp. and Network Appliance.
All that stiff competition is good for Troika, which provides a single, important piece of the storage puzzle.
Analysts expect a wave of consolidation in the storage business as larger-cap players scoop up smaller firms with hot technologies, and Troika has emerged as an attractive acquisition target.
“Troika has a very high-end product with a lot of unique capabilities that competitors or customers may want,” said Salomon Smith Barney analyst Edward Sun.
Among its competitors are Emulex Corp., JNI Corp. and Qlogic, while one of its best customers and a recent investor is Network Appliance.
Takeover talk
Is Troika a willing target?
“If a potential partner having access to markets approached us, it could make sense to have some combination that would accelerate the success of the business,” said CEO and President Alan Skidmore. “But we are not dependent on a merger or acquisition. Our strategy is to become a long-term, sustainable business.”
After five years of R & D;, Troika began shipping products at the end of last year to customers like Hitachi Data Systems and Network Appliance.
The troika in Troika Networks are co-founders Kevin Fox, Wayland Jeong and Bill Terrel, who left senior positions with Fortune 500 companies to launch the storage startup in 1996. Terrel and Jeong worked as engineers and managers at Hewlett Packard Co. and later joined Vitesse Semiconductor Corp. when it was still in startup mode. Cox spent a decade as an executive at Texas Instruments.
That industry experience was crucial in attracting VC interest.
Troika raised a third round funding, $41 million, last June from Draper Fischer Jurvetson, Windward Ventures, Dynafund Ventures, Network Appliance and others. To date, the company has raised $53 million.
Skidmore said the company is currently seeking funding from a “strategic corporate partner” that is also part of the “storage ecosystem.”
He would not disclose Troika’s revenues or other financial figures, but he said he expects the company to be profitable by 2002.
Banking on data explosion
The Fox-Jeong-Terrel troika hooked Skidmore, another industry veteran, to take the helm last year. Skidmore has more than two decades of data storage experience with Compaq and BMC Software, where he was responsible for taking advanced storage networking products to market.
“Alan Skidmore is a very level-headed and good manager,” said Denny Ko, a general partner at Dynafund. “In this business, execution is everything. Ideas alone don’t do it.”
As belts tighten in the corporate world, spending on storage systems has dropped off and hurt the valuations of storage businesses. But, as Skidmore pointed out, there is no downturn in data growth.
“Data and digital content are replicating resources,” he said. “You can delay spending on storage, as many companies have, but you won’t solve the problem.”
While analysts said the slowdown in storage spending won’t last long, another obstacle to Troika’s growth is that there are so many players in its storage “ecosystem” that must adapt to its new technology. The Fibre Channel architecture, which is a kind of protocol for storage networks, is in an early stage of development.
“Fibre Channel is not the kind of technology that gets adapted quickly,” Sun said. “To make the overall architecture work, a lot of people, from the server people to the storage people, have to agree on things. That inhibits deployment.”
