Gadzoox Networks

» see gadzoox.com as it lived, on the wayback machine

~ the eulogy ~

On 20 July 1999 Gadzoox Networks sold 3.5 million shares at twenty one dollars each and watched them close the day at seventy four dollars and eighty one cents. That put a market capitalization of 1.97 billion dollars on a company in San Jose that made hubs for connecting servers to disk arrays. Three years and seven months later Broadcom bought everything it owned for 5.8 million dollars.

The products were real and unglamorous. Gadzoox built entry-level storage area network gear, Slingshot switches and Geminix routers, carrying SCSI traffic over Fibre Channel so that a rack of servers could share storage through arbitrated loop hubs instead of each one owning its own disks. The company was founded in 1996 and it was early enough in that market to be worth a lot of money in the summer when being early in a market was worth a lot of money.

Then it came apart in the ordinary sequence. In March 2000 it paid 23.5 million dollars for SmartSAN. In June it launched a storage pooling line called Axxess and warned in the same month that first-quarter revenue would miss. In August 2000 the chief executive, Bill Sickler, and the chief financial officer, Christine E. Munson, both resigned after the company announced a financial restatement. Sales fell from 48 million dollars across the fiscal year to March 2000 down to 22 million across the fiscal year to March 2002. A raise of 8.9 million dollars in January 2002 bought about seven months. Steve Dalton arrived as chief executive that June, and on 22 August 2002 Gadzoox went into Chapter 11.

None of this hardware was going to turn up anywhere near me. Fibre Channel lived in rooms I would not be allowed into for another decade, and in 1999 my entire storage area network was one IDE disk. What did travel was the number. First-day IPO pops were printed like football scores that summer, in every country with a newspaper, and a stock tripling between the open and the close was as close as a general reader ever got to the storage industry.

~ the dossier ~

~ the name nobody meant to keep ~

Gadzoox was a placeholder. The founders picked it expecting to replace it with something a storage buyer could say out loud, and then the investors told them to keep it, so they kept it. It ended up on the prospectus and on the Nasdaq ticker.

A month after the offering, on 20 August 1999, the Wall Street Journal ran the company under a headline about an IPO with a familiar ring to it that was giving some investors a sense of déjà vu. A name chosen as a joke had been priced at nearly two billion dollars by a market reading at speed.

~ seventy four dollars and eighty one cents ~

Hold the two numbers up together and the whole era is in the distance between them. On the afternoon of 20 July 1999 the market said Gadzoox was worth 1.97 billion dollars. On 3 March 2003 a buyer in the same industry, looking at the same technology and the same engineers, said it was worth 5.8 million. That is a decline of 99.9 percent in three and a half years.

What changed was that the storage networking market turned out to be a real market with real competitors in it, and an entry-level hub vendor with a restated quarter and a departed finance chief had no particular claim on it. The revenue line says it plainly enough. Less than half the sales in 2002 that it had in 2000, in a category everyone agreed was growing.

The IPO price never came back into view, and the bankruptcy filing was a formality by the time it arrived.

~ what the fire sale paid ~

The sale took seven months to clear. Gadzoox filed Chapter 11 on 22 August 2002, moved the bankruptcy court for approval of an asset purchase agreement on 22 January 2003, and Broadcom announced the completed deal on Monday 3 March 2003: 5.8 million dollars in cash for the Fibre Channel technology and the engineering team, subject to a post-closing adjustment. The path to that figure shows how a fire sale is actually priced: Broadcom's bid began at 8.5 million dollars less the value of excluded inventory and receivables, which a February report netted out at around 4.9 million. Wikipedia's own article then says 5.3 million in the body while the source it cites says 5.8.

~ the protocol outlived the company ~

Fibre Channel is still here. Broadcom still sells it and storage arrays still speak it, and the only piece that really went away is the arbitrated loop topology that Gadzoox built its hubs around. The engineers went to Broadcom with the patents. The domain now serves a Chinese novel site.

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