This Storage Stock May Be Ready to Rock

Little-known Storage Computer has some new technology with the potential to revive its beaten-down shares

By Gene Marcial

Money manager Warren Bagatelle hit an awesome home run when he jumped on the shares of an unknown company called Fuel Cell Energy (FCEL ) in mid-January of 2000. The stock was then trading at 18.50 a share (adjusted for a 2-for-1 split). Ten months later, on Oct. 3, 2000, it had soared to 108. The stock is currently at 45. Bagatelle, managing director at New York investment firm Loeb Partners, scouts for obscure companies that own proprietary products targeted for huge markets. So what is his latest discovery?

Bagatelle's new find is little-known Storage Computer (SOS ), a worldwide provider of high-performance data-storage systems. Its stock has fallen from 24.85 a share last November to as low as 3.95 in December, before bouncing up to 6 on Apr. 3. Apart from the market's distaste for tech stocks, the company also faces stiff competition and had launched a direct-sales marketing plan that failed. Storage has since restructured and recapitalized itself by raising $25 million in private financing last year.

With Storage's stock now so depressed and the company's prospects over its new products so high, it could be another potential big winner, argues Bagatelle. The stock might still face downside pressure in the market's current surly mood. But he says it could double in 12 months when Bagatelle thinks the market's mood will have brightened.


  A highly competitive business, data storage is dominated by large technology companies, such as Seagate Technology, which was acquired by Veritas Software (VRTS ) last year. But Storage Chairman and CEO Theodore Goodlander exudes confidence. "We are operating in a different playing field, and we're far ahead in technology from our large competitors," contends Goodlander. On Mar. 22, Storage filed a patent-infringement suit against Seagate and its Xiotech unit, claiming that they violated Storage's patents in some of their products. Storage holds six patents in the U.S., Europe, China, Japan, and Canada covering the core technology underlying its computer storage subsystems.

Goodlander says revenues will "come back to life" in 2001, after declining consecutively in the past three years, from $37 million in 1997 to $10 million in 2000. And he expects that with the company's new CyberBORG product and its restructuring, Storage "in all likelihood will start making money this year."

The company makes software-driven multihost storage solutions for advanced business applications. Its high-bandwidth storage technology supports applications such as high-end databases, interactive multimedia, and desktop and workstation networks, as well as medical imaging.


  Where Storage's technology is different, explains Goodlander, is "in the blending of our new technology with optical systems." Its CyberBORG product plugs directly into the optical backbone network of the Internet or corporate intranet, and operates at speeds that are typically 10 times faster than the other kinds of networking storage. CyberBORG can be integrated into existing storage networks and servers, and this one box can be adapted for any of the three most common storage configurations.

CyberBORG, with its high-speed data throughput, can simultaneously deliver large blocks of information, including digital images and financial data, "from a single storage unit," explains Todd Viegut, who heads Storage's marketing operations. This is a very significant difference, says Viegut, because it not only cuts the cost of transporting data but also reduces the number of units, thereby increasing reliability. In medical imaging, for example, Storage's new technology can serve up images in seconds that now take literally hours to move through the network, says Viegut.

Among the company's major customers are AT&T, Avid Sports, ECI International, the Korean Educaton Dept., and Banta Publishing. The company is also putting up a facility in China to serve the storage market in that country, says Goodlander. And he is moving, says the CEO, to form partnerships with some large companies. If Storage is able to store enough confidence in such big customers, the stock might just scale back to its old highs.

Marcial is BusinessWeek's Inside Wall Street columnist

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