Thursday, July 12, 2007

Plugging into Infiniband

The registration statement for Infiniband switch maker Voltaire makes for some interesting reading. I did not know, for instance, the company had to defer nearly an entire quarter's revenue ($7.3 million) from late 2006 to sometime late this year because it was having trouble with its 20 Gbit/s switch which is now just about ready to be re-launched. Mellanox Technologies claims there is no problem with its switch chip used in the system.

If I were a punter, as the British say, I think I'd pass on buying Voltaire shares. The company's revenue growth is settling into something in the 'teens and it has yet to demonstrate a path to profits. By its own admission it is a third-tier player behind Cisco (Topspin) and QLogic which also have Infiniband products now.

What's more the company has a narrow support system. Three OEMs account for the majority of its sales--IBM, HP and Sun respectively. And Mellanox is the only supplier of its core silicon. And it readily admits Infiniband is still very much a niche market, a tenth the size of the emerging 10 Gbit Ethernet market.

Voltaire hopes to raise about $67 million by offering shares at about $13 each. It's not being very specific about how it will spend the money beyond saying it will help fuel R&D, overseas expansion and maybe an acquisition--though it has no concrete M&A plans. The company admits the cash will only see it through the next year or so.

I guess I should take my hat off to a startup that can build a business on a niche technology with a single chip supplier and three main customers. But I have to wonder how long they will be around to salute!

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