News

Network Engines: Back from the Brink

• By Doug Barney
• 02/01/2005

If you've never heard the Network Engines name, don't feel out of touch. The company spent much of its time designing and building products for big name vendors like IBM, EMC, CommVault and Computer Associates. Its initial claim to fame was having its groundbreaking 1U server absorbed into IBM's Netfinity server line—a feat for which Big Blue got the credit. Network Engines also sold direct, and includes such notables as Akamai as customers, but did so quietly.

By 2000, Network Engines was on a roll, and in July went public to the tune of $117 million—with a market cap of half-a-billion dollars.

Then the tech market had its meltdown. Revenues dropped from $18 million in one quarter to $2.5 million six months later—and some 80 percent of the client base disappeared overnight. By late 2000, the stock collapsed from almost $43 a share to less than a buck. The company constructed around healthy and growing sales was massively overbuilt.

CEO John Curtis

In early 2001, John Curtis came in as interim CEO to turn around the bloated, struggling company. Curtis, a veteran of Stratus and Banyan Systems, brought with him dose after dose of some pretty tough medicine—and then decided to stay.

Curtis cut staff, sliced expenses and slashed moribund products. Once stabilized, Curtis and crew set about the more difficult task of reshaping the company.

The recovery was based on building up the OEM side of the business. "We evolved away from the direct business by necessity," explains Curtis. A huge private label breakthrough happened when EMC asked the company to build its Centera line of archival storage gear, a deal that soon accounted for some half of Network Engines revenues.

Built on industry standard hardware, Centera got Curtis thinking about the appliance market, and that got the wheels turning about again building up the Network Engine brand. "We always wanted to find a business with better margins and better name recognition for Network Engines," Curtis says.

Establishing his own brand was a challenge that took $18 million to solve. At the tail end of 2003, Network Engines snapped up TidalWire, a maker of host-bus adapters. Curtis wasn't so much interested in adapters—he bailed on that $50-million-a-year Fibre Channel business last year. Rather, he needed TidalWire's distribution infrastructure, including a base of resellers, CRM software, call center, well-honed Fed Ex distribution system and more. This allows Network Engines to efficiently ship its own products, as well as partner wares.

With distribution in place, Curtis is staking the brand on a line of Layer 7 firewalls built around Microsoft's ISA Server. The NS Series Firewall Appliances, in addition to filtering traffic at the application layer, include Web caching and VPN capabilities.

The firewall line also continues the company's split personality—it sells under the Network Engines name and also the names of ISVs partners that add extra software to the systems.