Data Storage Systems Maker Eyes Acquisitions After Stock Run-Up
Tom Raimondi never thought he’d see his company’s logo on something so low-tech as a promotional hunting vest, but as he admires the camouflage and mesh garment, the MTI Technology Corp. chief executive finds a way to justify the expense.
“If I ever need to carry my shotgun shells around the office, I’ll be equipped,” he says.
These days, it’s hard to tell whether he’s joking. As he finishes out his first 100 days on the job and the Anaheim company celebrates a turnaround from last year’s see-saw revenue and so-so stock performance, Raimondi vows to become far more aggressive in a quickly growing market for data storage systems.
Case in point: When his largest competitor, EMC Corp., bolstered its position by purchasing the No. 2 player in the market last year, MTI took out a full-page ad in The Wall Street Journal “thanking” its larger rival for clearing out the playing field.
The taunt was more than symbolic. After purging several executives who didn’t agree with the company’s new philosophy, particularly the ones he says didn’t want to invest in new research and development, Raimondi has expanded his marketing team and focused on new products. He’s put $25 million a year into research, while re-launching the company with a new logo and brand awareness campaign.
More Hiring
The company, which grew by more than 100 people last year, expects to hire more than 150 this year, most of those in the engineering, sales and service departments. The company employs about 700 now. Revenue for the first three fiscal quarters ended in December totaled $165.5 million, up from $145.1 million the prior-year period.
“We’re a distant No. 2, but the clear No. 2,” said Raimondi of the new environment.
And with EMC clearly in its sights, MTI’s board of directors is investigating a few outside funding options for possible acquisitions. But with the recent run-up of its share price from about 30 in January to more than 50 late last week,giving it a market cap of more than $1.6 billion,the company also has the option of using its stock as currency for acquisitions.
Coincidentally, MTI has received $25 million from EMC and expects $5 million more under an agreement struck between the two companies in 1996 in which MTI sold several patents. Because of a non-disclosure provision, Raimondi won’t talk about the agreement other than to say he didn’t make the decision to sell and that it seemed to officials at the time the best way to “protect and monetize” its intellectual property. When asked if that meant the two companies had a patent dispute, Raimondi said he “can’t go there.”
MTI’s newfound aggressiveness shouldn’t surprise anyone who’s familiar with the 42-year-old executive.
Rose through Ranks
Raimondi rose through the ranks at MTI after leaving a $200,000-a-year job in 1987 for 30,000 shares of MTI, a $60,000-per-year salary and the promise that he’d be a millionaire when it conducted its IPO. But when it went public in 1994 with something less than a bang, he cashed in 85,000 shares,the bulk of his stake. The proceeds went to pay off the debt he had accumulated while living on the reduced salary and left $30,000 in his bank account, precisely the amount he had when he started the job.
Another blow came a few years later when MTI acquired National Peripherals, a company that specialized in open-system storage systems destined to wipe out the proprietary systems that had been MTI’s specialty. Raimondi was left in charge of the old business, ordered to milk as much money as he could from it while the division slowly died. He agreed, but persuaded management to allow him to beef up the division’s engineering efforts and keep the customers who wanted to migrate to the newer systems. Soon, Raimondi’s half of the business overshadowed the unit designed to replace it.
Caldera Investment
The company also took out a 25% stake in Utah-based Linux software maker Caldera Systems Inc., which has since been diluted to 20%, in an effort to muscle in on the red-hot Linux market. Though he calls his strategy a return to the company’s past, Raimondi promises to make MTI’s product line platform independent , stark contrast to its early days as a supplier of DEC equipment.
Raimondi took over the CEO job after former CEO Earl Pearlman resigned last year. If Pearlman’s options last year are any indication of how many Raimondi will receive, and if the stock price can maintain its current run-up, Raimondi stands to make well over the $1 million he was hoping for when he started.
The company makes network-attached storage devices (integrated high-end disk drive systems that operate independently of already-taxed network file servers) and storage area networks (super-fast networks that connect servers and storage devices, usually over long distances). Both are becoming central to an information-based economy as businesses demand better performance, greater reliability and global access to their data.
Sluggish performance in the commodity storage business notwithstanding,as evidenced by well-publicized troubles at Western Digital and Seagate Technology Inc., among others,Raimondi expects a reversal in the historic relationship between computers and the so-called peripherals that attach to them.
“Storage is no longer an afterthought; it’s the heart and soul of online computing,” he says. “If anything’s going to become a commodity peripheral, it’s the computer.”
Heady Rise
Raimondi’s skills as a technology prognosticator are unproven, but his knack for selling investors on the idea is clear. Since he took over as chief operating officer in July 1998, the stock has risen from just over $7 per share to more than $52 per share last week. More than $20 of that jump has occurred since his appointment as CEO in December.
And predicted growth could boost other Orange County companies. MTI uses hard drives from Western Digital and components from Emulex Corp. and QLogic Corp.
But Raimondi’s toughest business partner sits on his own board of directors. Recalling an incident a few weeks ago when he congratulated himself for the stock run-up, he says Chairman Raymond Noorda,former Novell Inc. CEO and founder of Canopy Group Holdings, a stakeholder in both Caldera and MTI,was a little more subdued.
“He told me: ‘It’s a good start, buddy.’ ” n
