The Beatles famously sang about getting by with a little help from their friends. The same held true for the family of leaders at Santa Ana-based SimpleTech Inc., now known as STEC Inc.
The flash memory products maker just sold off its consumer division,and its name. Friends figured prominently in how the deal went down.
SimpleTech had been seeing overall profit margins of about 18% for the past couple of years, largely dragged down by low profits from its consumer arm, which makes flash memory cards for digital cameras and other gadgets.
Chief Executive Manouch Moshayedi was growing tired.
“If you’re selling with no margin or very low margin, you’re basically a distributor,” he said.
Moshayedi said he started networking. By early winter, he was introduced to Mike Cordano, chief executive of a tiny San Mateo software maker, Fabrik Inc. Cordano was looking for a channel for its software.
“He turned out to be a friend of a friend of mine,” Moshayedi said.
The two companies sized each other up and came to a deal on a sale. Fabrik is paying $43 million in cash for the consumer unit and taking the SimpleTech name.
STEC plans to focus on making flash memory for industrial uses,for use in aerospace, medical devices and other areas. What the company goes by isn’t so important there.
For the consumer unit, there’s a lot of SimpleTech memory cards on store shelves already. It made sense to maintain that, Moshayedi said.
The payoff should be in profits, he said.
“Now with the sale of this business, our margins will be well north of 35%,” Moshayedi said. “We’re hoping that we can grow that over 40% throughout the year.”
In the near term, however, STEC warned last week that current quarter results will fall below Wall Street estimates.
Fabrik is set to keep SimpleTech in Orange County. The company’s leasing a 30,000-square-foot building just a half-mile from where the consumer division’s 150 workers now are based.
“Everybody’s got a home,” Cordano said. “We’re making a long-term commitment with our facility in Orange County.”
Cordano said he plans to build a management team with the help of Mike Moshayedi. Moshayedi, who had been head of the consumer division under SimpleTech, resigned from the company and stepped down from the board. He’s set to stay on as a consultant for a couple of months.
That led to another call among friends. Chief Technical Officer Mark Moshayedi called Vahid Manian, a senior executive at Irvine-based Broadcom Corp. and an old friend from their days at the University of California, Irvine, to take the board seat Mike Moshayedi left.
With the cash from Fabrik, STEC will be sitting on nearly $100 million. Chief Financial Officer Dan Moses said that allows the company to look at acquisitions without having to offer additional shares.
Spam Buster
Irvine-based Sendio Inc. has raised $4 million in a first round of funding from Santa Monica-based Kline Hawkes & Co.’s KH Growth Equity Fund to build sales and marketing of its spam-fighting device.
Sendio’s I.C.E. Box, which looks like a small pizza box designed to sit alongside an e-mail server, intercepts incoming messages and confirms the identity of the sender before passing it along. If it can’t get validation, the e-mail is eliminated along with the ads for Viagra, online degrees and refinancing deals.
President Kelly Anderson said it’s an alternative to the basic filters most Internet mail servers use now, which typically flag e-mails based on key words,few of which can be printed here. Anderson said that allows far too many disguised viruses, phish and other attacks to pass.
“There’s a combination of three things that allow them in: solicitation, volume and anonymity,we take away the anonymity.”
In a little more than a year since creating I.C.E. Box in a Costa Mesa garage, the startup has gained more than 150 customers. Among them: Chris Hautman, technology manager for White Bear Lake Area Schools in suburban Minneapolis.
The district spent about $3,000 and installed the I.C.E. Box two weeks ago.
“The one thing I liked about it is it stops it right at the front door,” Hautman said.
Shot Down
Acacia Research Corp. lost a round to Texas Instruments Inc. in one of its patent infringement suits.
Acacia, which acquires patents and then seeks licensing fees from users, has found a profitable niche. But it has drawn criticism from major technology companies who have been targeted for royalties. Acacia executives have said they’re simply representing the interests of patent holders.
A recent lawsuit against Texas Instruments didn’t turn out in Acacia’s favor. A federal judge granted summary judgment to Dallas-based Texas Instruments, saying the company had not infringed on any patent.
Acacia, through a subsidiary called Microprocessor Enhancement Corp., had sought $94 million in damages. The company declined to comment on the case.
