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SimpleTech Readies Product Samples From Acquisition

SimpleTech Readies Product Samples From Acquisition

By ANDREW SIMONS





A couple of months after Santa Ana-based SimpleTech Inc.’s buy of Irvine Networks LLC, Orange County’s third-largest memory products maker is on track to ship prototypes from the acquisition to a potential customer earlier than expected, a source close to the company said.

Officials from SimpleTech,which ranks behind Fountain Valley-based Kingston Technology Co. and Rancho Santa Margarita-based Viking Components Inc. in memory products,weren’t available for comment last week.

More details about the strategy behind SimpleTech’s $2.3 million buy of Irvine Networks of Irvine have come to light. Irvine Networks, which now operates as a SimpleTech unit called Xiran, has designed what’s called a content processing switch,a circuit board that helps speed the processing of Web pages on Internet servers.

The device looks like a normal computer circuit board and sits inside an Internet server. The switch essentially takes requests for Web pages and processes them separately. Before, servers handled requests for Web pages and for data via a corporate intranet, causing bottlenecks.

Xiran says its switch “will make it a lot less expensive to deliver a lot more content a lot faster than is currently possible.”

SimpleTech has busily sought customers for the new switch, according to a source. But, as with many new technology products, potential customers are reticent to sign deals.

“It’s very much a theoretical product,” said a source. “We’ve got the Xiran engineering team and the SimpleTech engineering team working on it.”

The company expects to double its research and development costs to $9 million this year after the Xiran buy.

SimpleTech, which bought Xiran in January, had been in talks with the company for about six months. SimpleTech said it did the deal for the technology Xiran had developed. Not much has been known about Xiran, which had been in “stealth mode” since opening its doors in 1999.

The acquisition was out of the norm for SimpleTech and sparked the interest of its competitors. Even though the company has been looking to add more products to its lineup of memory for personal computers, it had been looking at more profitable memory businesses such as flash memory.

The content processing switch itself uses a lot of memory, which SimpleTech could supply with each switch it sells.

“We’ve always been a company that’s diversified,” said SimpleTech Chief Executive Manouch Moshayedi in an earlier interview. “We always like to find new companies and sell their products through our channels.”

SimpleTech already has been riding high atop a mounting stock price. Since October, SimpleTech shares have grown eight times, to a recent close of 9.20. During that period, the price for the most basic form of computer memory grew just as much.

Rising prices for computer memory have been welcomed by SimpleTech and other memory makers, which tightened belts as memory prices eroded. Kingston and Viking both cut jobs in the past year as they tried to reconcile their spending with slower sales. SimpleTech said it planned to scale back expansion plans.

Last year, SimpleTech reportedly weighed a bid for Viking.

But the Xiran buy could indicate SimpleTech has changed its tune about acquisitions and expansion. As of the fourth quarter, SimpleTech counted $51 million in cash and the company has noted its intentions to acquire more companies in the coming year.

“We intend to pursue selective acquisitions to complement our internal growth,” the company said in a recent filing with the Securities and Exchange Commission.

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