Monday, November 30, 2009

IT firm Egenera takes lean business approach, names new CEO

By Galen Moore

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Now nine years old, with $180 million of venture money invested, Egenera Inc. looks more like the Queen Mary II than some of the more nimble vessels in Massachusetts’ startup economy — but the Marlborough IT company has spent the past year attempting to pivot like a runabout.

Formed in 2000 to take on such data center giants as Hewlett-Packard and IBM, Egenera has spent the past year backing away from that battle and retooling for a more flexible approach.

At about 140 employees, Egenera’s head count now numbers less than half the 320 it employed just over a year ago.

Management has scaled back the clunkiest part of its business — manufacturing and distributing server hardware — in favor of a leaner model, in which the company is making software and selling it through third-party hardware makers Dell Inc. (Nasdaq: DELL) and Fujitsu Technology Solutions BV.

At the beginning of this month, Egenera quietly shuffled its executive suite, appointing former CTO Peter Manca to CEO. Former CEO and chairman Michael Thompson is now Egenera’s board chairman, solely.

Now reporting annual revenue between $50 million and $100 million, the privately held company has a handful of marquee customers through its channel partners, including Lockheed Martin Corp. (NYSE: LMT), which is using the company’s technology in a flight-control project. Egenera executives have said the project could result in an upgrade to the Federal Aviation Administration’s air-traffic control system, where a server glitch last week caused major delays at airports across the United States.

A Lockheed Martin spokeswoman declined to comment.

PAN Manager, the software product that has become Egenera’s flagship, is designed to let administrators quickly swap workloads from one set of servers to another, increasing efficiency and preventing downtime. The company now competes with device-management offerings like Cisco Systems Inc.’s (Nasdaq: CSCO) Unified Computing System (UCS) class of servers.

Egenera has maintained its existing base of customers relying on its BladeFrame server product. That’s where most of its revenue currently comes from, Manca said. However, it’s not competing with other hardware makers anymore.

“We’re not focused on the big monolithic new hardware platforms coming out,” he said. Instead of employing the large engineering and support structure necessary to compete full tilt in the hardware space, the company can cut a leaner profile selling its software sauce as an add-on to existing software platforms, he said. “We can be a bit more streamlined with that focus, with that strategy.”

Founded and originally run by Vern Brownell, who now holds a seat on the company’s board, Egenera launched in March 2000 and soon began touting its virtual server technology as a killer of corporate data center titans. By 2003 the company had taken $94 million in venture capital and was projecting profitability by the following year.

It achieved profitability, at one point cracking $100 million in annual revenue, Manca said — but has since fallen short. The job cutting began last November, when Egenera dropped 87 positions from its payroll, which at the time numbered 320.

Earlier this year, a company spokeswoman said Egenera had set an end-of-2009 goal for break-even. In an interview Tuesday, Manca declined to discuss the company’s status with regard to that goal.

The company’s long list of investors includes both strategic and venture-capital backers. Just three — Waltham-based Kodiak Venture Partners, Dallas-based Pharos Capital Group LLC and Bethesda, Md.-based American Capital (Nasdaq: ACAS) — currently hold board seats.

Kodiak Managing Partner Lou Volpe, who represents the firm on Egenera’s board, was traveling and unavailable for comment, according to another partner at the firm. American Capital managing director Miles Arnone declined to comment.

Pharos partner Jim Phillips did not return calls seeking comment.

Manca declined to discuss how Egenera hopes to achieve an exit above the $180 million bar set by its investors. “You can’t really speculate on how that’s going to happen,” he said. “All you really do is control what you can control, and that’s building the business.”