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Network Engines gets $25 million investment

The server appliance company gets $25 million in funding to help it stand out in the thicket of companies building special-purpose server computers.

Network Engines has nabbed $25 million in funding to help it stand out in the thicket of companies building special-purpose server computers.

Network Engines builds Intel-based servers, each 1.75 inches tall and designed to be bolted into racks by the dozen for use at Internet service providers (ISPs) and other companies who need lots of small servers to handle tasks such as serving up Web pages.

Network Engines licensed its design to IBM, which sells it as the Netfinity 4000R. With the new funding in hand, Network Engines will expand and improve its products and marketing, the company said.

Manufacturers of the special-purpose computers known as "server appliances" have been stealing some of the attention that had been focused on the more traditional, general-purpose servers. Server appliance advocates argue that, by being tuned for a specific job, server appliances offer either higher performance, lower cost or easier management.

Network Appliance, the first server appliance company to go public, has seen its stock soar since November. The price rose to an all-time high of 83.88 a few days ago, and it has risen more than 9 percent in closing trading today to 85.38 on the news of a 2-for-1 stock split and that the company has joined the Nasdaq 100.

But eager investors have other options to choose from as well. Cobalt Networks and eSoft both make server appliances based on the Linux operating system, another trend that has captured investor attention. And CacheFlow, like Cobalt, had a successful IPO in November. Auspex and EMC, also publicly traded companies, sell server appliances as well.

Network Engines' server appliances initially were based on Windows NT, but the company introduced a Linux version called Xengine in May.

Linux is an open-source operating system, currently enjoying a rise in popularity.

HarbourVest Partners, Canaan Partners and Landmark Partners contributed to the most recent round of funding, along with earlier Network Engines investors, the company said. Network Engine's initial $1 million in funding came from Ascent Venture Management in 1997. The company secured a second round of $8.3 million from Memorial Drive Trust Advisers, Egan-Managed Capital, Corning Capital and Ascent Venture Management.

It's becoming a rather crowded market. By acquiring other companies, hard disk makers Quantum and Maxtor have started selling storage server appliances devoted to the task of data storage--a way to boost the thin profit margins that have hurt their business. Today, Quantum installed Anders Axelsson, formerly of Honeywell, as its new vice president and general manager of its storage appliance division

Server appliances are making their way into the product lines of traditional server companies such as IBM, Hewlett-Packard, Dell, Sun Microsystems and Compaq. But one of the more interesting entries into the market is Intel, which by building and selling server appliances has begun competing with the very companies that buy its chips.

Intel has a line of server appliances for small businesses that want machines that handle email, a connection to the Internet, printing tasks, or just file storage.

In addition to the publicly traded server appliance makers, there are a host of privately owned companies as well, Mirapoint, NetMax, Encanto Networks and TechNauts.