sTec Shifts Focus From OEM To Channel As Sales Slide

SSD vendor sTec has launched its first channel program as part of a move to diversify its business away from its dependence on the OEM storage market.

sTec, which shipped its first SSD in 1994 and has since shipped about 14 million units, has focused heavily on the OEM market for the last five years, said Ali Zadeh, corporate senior vice president and CMO for the Santa Ana, Calif.-based storage vendor.

"The problem is, you can count the number of customers we have on two hands," Zadeh said. "When 80 percent of your business depends on three customers, if one sneezes, we see a big impact. We need the channel."

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The channel push by sTec stems heavily on experience Zadeh gained from his years as vice president of international sales at NetApp. "We learned you can't go on without the channel," he said. "You need the channel to gain velocity."

Gaining velocity is important right now for sTec, which has seen sales through its existing customer base fall. The company last month reported revenue for the fourth quarter of 2012 of $35.1 million, down 39.6 percent from the fourth quarter of 2011. Revenue for all of 2012 was $168.3 million, down 45.4 percent from full-year 2011.

Non-GAAP profit margin in 2012 was 36.1 percent, down from the prior year's profit margin of 43.8 percent. The company for all of 2012 lost $1.03 per share on a non-GAAP basis compared to a per-share profit of 70 cents in 2011.

Zadeh said competition has hurt sales. "About one or one-and-a-half years ago, many well-known vendors like Seagate, Hitachi and Western Digital walked into the OEMs and offered SSDs with lower prices," he said.

Today, however, the biggest opportunities for sTec are coming from the channel. "In the last three months, we've seen over 10 customer opportunities that are potentially bigger than our OEM deals," he said.

sTec this month rolled out its first channel partner program, which makes its SSDs available directly to solution providers or via distributors including Synnex, Avnet and Arrow for the first time, Zadeh said. This includes the company's SAS SSDs, PCIe flash products, embedded SSDs and caching software, he said.

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STec is also providing partners with enterprise support as well as with reference architectures for such areas as virtual desktop infrastructure (VDI), big data and financial applications. "We're working with partners to build high-performance systems," Zadeh said.

sTec hopes to eventually see 50 percent of its revenue come via channel sales, Zadeh said.

"Channel partners today can build high-performance unified storage devices in a garage using SSDs," he said. "There's no way they could do that 10 or 15 years ago. Today they can get a system from a company like Nexenta and load it up with SSDs. Will it be as good as a NetApp flash array? Maybe it won't fit 10 percent of a customer's needs. But the cost is much lower for reaching 90 percent of a customer's requirements."

PUBLISHED APRIL 9, 2013