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Server maker cuts work force by a third

Network Engines, a small company on the cutting edge of server design, is going to get 30 percent smaller.

Network Engines, a small company on the cutting edge of server design, is going to get 30 percent smaller.

The Canton, Mass., company said Tuesday it's laying off about 30 percent of its staff--roughly 51 of its 170 employees--in an effort to cut operating expenses by 30 percent to 35 percent.

Network Engines pioneered slim servers that can be bolted by the dozens into racks of computer gear. It beat larger companies to the market, and IBM chose to license the company's two-processor, 1.75-inch thick server instead of building one of its own.

But revenue has plunged with the rapid collapse of the Internet, which had spurred demand for the products, combined with increasing competition from IBM, Compaq Computer, Dell Computer, Hewlett-Packard and Sun Microsystems.

"They make some nice products," said Aberdeen Group analyst Gordon Haff, pointing to the special-purpose "server appliances" that are Network Engines' specialty. However, "everybody and their brother are making basic server appliances, and it's hard to differentiate yourself on basic server appliances."

Network Engines needs to focus on narrower markets, Haff said.

When the company released its second-generation Sierra server product, its stock had slumped to $1.71. On Wednesday, the stock was down to 70 cents per share.

Network Engines is increasing development efforts for versions of its hardware geared for data storage, the company said.

The company will report financial results for the quarter ended March 31 after the market closes on April 26.