Network Engines (NEI)

[blueskywaves]

Superb posts, Kevin.

1) Regarding the TidalWire distribution business, both McData and Q-Logic recently passed the $100M quarterly revenue milestone powered in both cases by their mid-range products -- exactly the kind of products favored by their 500 or so VARs.

I've followed first generation SANS (mainframe ESCON) and second generation SANs (fibre channel) markets long enough (since 1995) to know that the way a vendor positions itself in one generation usually sets up the next generation of opportunities, at least! NENG's foresight in buying TidalWire (and its access to 500 or so VARS and resellers building storage practices) will be validated over and over again in the years to come as SANs become faster (2Gbps to 4Gbps to 10Gbps) and multi-protocol (Ficon, Fibre Channel, iSCSI).

2) Centera currently provides 20%-25% gross margins while TidalWire provides 15%-20% gross margins. That's why some people considered it a counterintuitive purchase. NENG's business is also still very much storage network-oriented, but the opportunities are clearly there for NENG to sell several niche networking and security appliances around the SANs or dynamic storage pools that are forming in the mainstream corporate market. Those appliances should carry at least 25% gross margins. That will give it the best of both worlds: rapidly expanding sales and margins.

http:/www.tidalwire.com

More later.