Underperforming Endace a 'drag' on Emulex

Endace was supposed to be a growth driver for Emulex, but has so far failed to deliver.

Emulex's network visibility business Endace may need a software boost to deliver the kinds of sequential growth that Emulex CEO Jeff Benck wants.

Speaking at the 2015 Technology, Internet and Media Conference in San Francisco this week, Benck said Endace had been "a bit of a drag" on Emulex this fiscal year, but that new leadership is now in place to deliver a turnaround.

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Jeff Benck

"Endace had a tough year last year and did not do what we wanted it to do," Benck said. "We took some action and made some changes in leadership."

Endace develops network probe technology that earned it a place in WikiLeaks' 2011 "Spy Files" list of companies delivering technology to global security agencies.

Emulex's main line of business is in supplying Ethernet and fibre channel adapters.

Benck said Endace appointed a new general manager, Ali Hedayati, who came to Emulex from BMC in October. Hedayati in turn brought on new heads of sales and marketing.

Benck said he was looking for sequential growth from Endace, which began happening modestly in the December quarter.

"I see the opportunity for us to augment the software strategy there and add more software content to our appliances to solve a bigger piece of the problem for our customers," Benck said.

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Asked when Endace would become accretive to Emulex's profitability, he said that was a good target for next fiscal year.

Benck said Endace could be cut to profitability "tomorrow", but he is trying to get profitability by growing the top line.

Endace, a commercialisation of technology originally developed at Waikato University in New Zealand, was a controversial acquisition for Emulex two years ago.

Activist investor Elliot Management opposed the $122 million deal, arguing that the money should be used to buy back some of Emulex's then-undervalued shares.

Emulex's 2014 accounts show that Endace contributed just $33.9 million to Emulex's $447 million in total sales. Emulex's sales were down from over $500 million two years before.

Endace's New Zealand accounts show a decline in sales from $39.9 million in the year to the end of June 2013 to $23.4 million in 2014.