Hard Times In Tape Business - InformationWeek

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11/11/2008
12:49 PM
Howard Marks
Howard Marks
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Hard Times In Tape Business

Between the shift to disk backup and the economy rolling downhill, times are tough for tape library vendors. While IBM and Sun can shift their sales from tape libraries the size of a small Winnebago to their home-built VTL, the makers of midrange tape libraries are having a tougher time as much of their sales came through OEM deals with EMC, HP, or HDS and those vendors' VTLs don't pay Quantum or Overland's rent. Even media vendor Imation is hurting.

Between the shift to disk backup and the economy rolling downhill, times are tough for tape library vendors. While IBM and Sun can shift their sales from tape libraries the size of a small Winnebago to their home-built VTL, the makers of midrange tape libraries are having a tougher time as much of their sales came through OEM deals with EMC, HP, or HDS and those vendors' VTLs don't pay Quantum or Overland's rent. Even media vendor Imation is hurting.Quantum is being threatened with delisting by the New York Stock Exchange for trading at less than $1 a share for more than 30 consecutive trading days. While they can fix that problem with a simple reverse stock split, Quantum's fundamentals are nothing to write home about. The company that just 2 years ago bought ADIC for $770 million now has a market cap of just $57.6 million and an interest bill of $56 million a year that's in no small part still paying the ADIC bill.

On the plus side, Quantum has a respectable line of deduping appliances (but only sold $19M worth of them last quarter) and holds the Rocksoft patent on variable block size deduping. Software and patent license revenue from Dell, EMC, and Riverbed should start coming in soon, providing a new income stream.

Overland Storage is in even worse shape, losing $6.9 million last quarter with just $5.3 million in cash on hand. Their problems started when HP chose another vendor to supply midrrange tape libraries a while ago, cutting sharply into its income.

It also has VTLs, including a deduping model using the Diligent software, and recently picked up the Snap server line from Adaptec and is trying to make the transition to a disk-based economy, but management is desperately searching for $10 million to make it through 2009.

And even Imation is tightening its belt, laying off 200-plus employees (10% of the workforce) and closing a tape plant in Tucson, Ariz.

I'm thinking the ADIC guys timed this one just about right.

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