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Networking firm looks to tap storage craze

Networking specialist JNI will try to capitalize on the craze for storage technology with an initial public offering aimed to raise as much as $80 million.

Networking specialist JNI will try to capitalize on the craze for storage technology with an initial public offering aimed to raise as much as $80 million.

The move, along with Dell Computer's acquisition yesterday of ConvergeNet, is a vote of confidence for the storage area network (SAN) concept and the "Fibre Channel" networking standard that is associated with it. SANs are separate high-speed networks that connect servers and storage devices. They're designed to unburden increasingly overloaded networks.

JNI plans to raise $80 million, based on its registration filing with the Securities and Exchange Commission. Proceeds from the offering will go toward repaying debt, developing new products, increasing sales and marketing efforts, and acquiring other products.

Analyst firms have blessed the SAN concept as a way for big companies to reduce storage headaches, and major companies such as IBM, Dell Computer, Compaq Computer, Sun Microsystems, and Hewlett-Packard all have SAN initiatives under way. The expanding market for storage has also made Massachusetts-based EMC, which has seen its stock value nearly triple in a year, one of the more popular hardware picks on Wall Street.

Although promising, the technology has suffered somewhat because it's been hard to ensure that all the components that make up a SAN--such as switches, hubs, and disk arrays--work together.

Business has been picking up for JNI, according to its SEC filing. In 1998, the company had a profit of $311,000 on revenue of $12 million. In the first six months of 1999, JNI reported $1.8 million in profit on $15 million in revenue.

The company makes the electronic components that connect servers to the SAN as well as accompanying software. JNI equipment is sold as part of SAN product bundles from Hitachi Data Systems and StorageTek. Manufacturing partners such as these accounted for well over half of the company's revenue, the company said. A large fraction of the company's business comes from connecting Sun servers and EMC storage products.

JNI, based in San Diego, was founded in 1997 as Jaycor Networks, a subsidiary of Jaymark. Chief executive Terry Flanagan, 51, claims an annual salary and bonus of $325,000.

The company proposes to trade under the symbol "JNIC" on the Nasdaq market.

Risks
The company said the growth and acceptance of products based on the Fibre Channel standard is one of the big risks to the company's success. "The Fibre Channel market, while rapidly evolving and attracting an increasing number of market participants, is still at an early stage of development," the company said.

"To achieve widespread market acceptance, Fibre Channel must supplant current widely accepted alternative technologies such as SCSI."

In addition, the company faces competition from Emulex, QLogic, Interphase, Adaptec, LSI Logic, and HP.

The offering is being underwritten by Donaldson, Lufkin, & Jenrette; Hambrecht & Quist; and Bear Stearns.

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