Azul Systems cheats death with US$40 million bailout

Azul Systems, secured US$40 million in new financing Thursday just as the provider of Java "network-attached processing" servers was laying off employees and reading media speculation that it was looking for a buyer.

Azul Systems says it intends to use the new money to further develop its roadmap of network-attached processing products to sell to large enterprises running Java applications.

Azul takes a contrarian approach to developing greater server processing power. Rather than add more servers with dual- or quad-core chips as computing needs grow, Azul offers a pool of processing power that applications can dip into as needed. The company calls it "network-attached processing" because of its similarity to network-attached storage.

Azul identifies British Telecom and Credit Suisse as customers.

Azul, which was founded by former executives of Sun, the creator of the Java programming language, settled in June a patent lawsuit brought by Sun, which claimed Azul was using patented Sun technology in developing its products. As part of the settlement, Sun owns 5 percent of Azul.

The Web site The Register.com reported Wednesday that Azul was looking for a buyer, had stopped work on future projects and laid off 45 employees after having lost a key investor in a previous financing deal.

In a phone interview, Azul CEO Stephen DeWitt confirmed the layoffs but denied the other reports. He said the company is planning to add more sales people to its now 125-person staff.

DeWitt said one new investor in the company is JVax Investment Group, which has joined with previous investors Accel Partners, Austin Ventures, ComVentures, Credit Suisse, Meritech Capital Partners, Redpoint Ventures and Worldview Technology Partners.

The added funding "most definitely should give them some breathing room," said Cal Braunstein, of the Robert Frances Group, which has been advising Azul on its strategy. Azul has had difficulty selling because the idea of network-attached processing is new to the marketplace, Braunstein said. Even if it can convince a prospective buyer's IT people of the wisdom of the technology, it has to convince the business line executives, too, which is a harder sell.