Plasmon tries to raise fresh cash

Struggling optical archive supplier is looking to refinance to stay in the game.

Plasmon, the struggling optical disk and Archive Appliance product supplier, is looking to raise £10 million from a share placing to stay in the game.

The company has spent a significant amount of funding on developing its optical disk technology and the strain of capitalising on this has prompted board-level changes and the hiring of a new CEO, Stephen Murphy, who successively sold the last company he ran, Softek, to IBM in 2007. He led the management buyout of Softek from Fujitsu and successfully weathered the collapse of the storage resource management (SRM) market, re-focusing Softek on data migrations.

Plasmon has moved its operating headquarters from Cambridge, England, to Broomfield, Colorado, and has focused its efforts on the growing data archive market. It has unique, long-life technology with a steady development roadmap for higher-capacity UDO disks. The company has also changed from being engineering-led to a much more customer-focused on selling high-value archive appliances rather than the relatively expensive UDO drives within them.

The proposal is to place 100 million ordinary shares at 10 pence per share. The money, after expenses deduction, will be used to invest in the development of a direct customer-facing sales and service channel. This will involve the recruitment of senior (predominantly US-based) executives, most of whom have been identified and are ready to join the business.

In a little more detail it will:-

  • fund recruitment and investment in the customer-facing sales and service channel and industry marketing strategy;
  • strengthen the company's intellectual property in the 'software solution layer' of Archive Appliance; and
  • fund the working capital requirements of the company and provide customers and employees with confidence in Plasmon's long-term growth prospects.
  • So some nine million quid is going into luring US-based sales and service execs into Plasmon until the hoped-for sales results come in. Also it looks like either software development or purchase will be involved as well.

    Plasmon is asking its long-suffering investors and customers to believe once again that it has a viable and realistic chance of sales success which will deliver the revenue growth long-term investors have been awaiting for some time.

    What has the company done so far during its recovery period?

    It points out that, in 2007, it signed '16 new reseller channel partners which, in the first half of 2008, grew Archive Appliance sales by approximately 50% year-on-year and increased the sales pipeline fourfold. Secondly, a major programme of operational restructuring, which has already reduced the overhead cost base by 17% and, the company expects, will have reduced headcount by 25% when the outsourcing of hardware manufacturing is concluded in June 2008.'

    Plasmon says that the margin on sales is now approaching management's target of 60 per cent. Rod Powell, its non-exec chairman, said "The Board and I are delighted with the impact Steven Murphy has made in the last 2 months. His experience and skills are exactly what the company needs to turn its technology leadership into market leadership."

    Really it comes down to a bet on Stephen Murphy. Can he do the business for Plasmon? He said: "Archiving is becoming a mainstream application just as the Archive Appliance is being recognised as the solution of choice. We now have access to the people and resources we need to deliver exceptional sales growth."

    That's the hook; exceptional sales growth. The 'jam tomorrow' point though has been pushed back, but not by much. The cash break-even target is now the second half of 2009.

    Raising money at 10 pence a share is a disgrace in itself
    Source familiar with Plasmon's business,
    A person familiar with Plasmon's business criticised the direct sales force aspect of Plasmon's plan, saying: "The attempt to raise an additional £10 million at 10 pence per share is a last ditch gamble to make something out of nothing. The 'direct facing sales force' is a predicate disaster in Plasmon's strategic position. An archive appliance is not a solution in itself, it is an accessory to an electronic information system. The integration into those systems is best made by the system integrator. The logistics of the hardware business make an indirect distribution almost a requirement."

    He also suggested that although Murphy has undeniable software business success in his background that won't automatically translate into hardware success.

    Summarising the situation for long-term investors, he said: "It appears the last die is cast. Raising money at 10 pence a share is a disgrace in itself. There certainly can't be investment recovery for anyone who invested during the past twenty years. The only exit strategy possible is a sale to a larger industry player ... all of whom are struggling with the impact of the Internet and remote data storage service providers. "

    For sympathisers with this point of view the hoped for sales success will come from a skilled indirect channel, the revenues from which will make Plasmon an attractive acquisition target. A countervailing view would point to Murphy's track record, the cost reductions achieved and the much-improved indirect channel and its results as indicating that Plasmon can succeed on its own.

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