Analysis

posted on 29 February 2008 18:55

Tandberg Data has stared into the abyss. The fourth quarter, 2007, results are dreadful and show why there has been a wholesale clear out at the top of the company. Drastic action is needed to cut costs, improve gross margin and capitalise on the sales and marketing channel in the US opened up with the November, 2006 Exabyte acquisition.

Results overview

Loss before tax was $28.8 million compared to a $2.3 million profit in 4Q06 (fourth quarter, 2006) despite year-on-year revenue for 4Q07 being up 3.1 percent at $47.9 million. This terrible result has put the parent company, Tandberg Data ASA, into negative equity, having lost more than 50 percent of its share capital.

OEM sales as a percentage of the results were up and distributor sales were down. End-of-year channel stuffing was halted and this caused decreased bookable revenue.

Why did these horrible results happen?

There were product sales problems which exposed poor and inefficient processes inside the company. The overall tape market is declining, with the SLR and DLT formats badly hit, also VXA, but Tandberg's LTO automation sales are rising slowly and RDX removalable hard drive sales are rising strongly. Neither effects were strong enough to counter the declines in the other tape format sales, the decline in distribution sales and a whopping $19.2 million impairment charge against the Exabyte goodwill and capitalised R&D.

Tandberg now has a grossly high cost base for its revenues.

Tandberg's board, seeing these results coming, appointed Pat Clarke as the new CEO in January this year. He had been Tandberg Data's EVP of global sales, marketing and service since May 2007, having joined Tandberg Data in 2006 as VP sales and marketing EMEA. As CEO he replaces Kristian Jacobsen who, having been only appointed in March, 2007, lasted a mere ten months. Obviously things went from bad to worse.

(Pat Clarke pictured above.)

Jacobsen replaced Gudmundur Einarsson who had been Tandberg Data's CEO since 2000 and who had carried out the November 2006 takeover and integration of Exabyte. At the time Chairman of the board, Terje Thon, said: "Per Kristian Jacobsen is a result-oriented leader with international business experience. He is the right person to further the development of Tandberg Data."

Thon was wrong. He wasn't. He himself went and Gudmundur Einarsson replaced him as Chairman of the Board in December 2007. As exec VP Clarke had appointed new people. One year after becoming chairman Einarsson realised Jacobsen wasn't up to the CEO's position and promoted Clarke to the top spot. There is now a new senior management team - CEO, CFO and COO -  and new senior sales peple for EMEA and the USA.

(Gunnar Einarsson pictured left.)

The priorities are to lower Tandberg's cost base and to build up sales. The identified need is for annual savings of $16 million. The company also needs new capital and a new stock issue is planned for next month, aimed at raising 100-150 million kronor, between $16 million and $24 million. Tandberg also aims to restucture its loans. There has been a mention of a reduction in personnel expense, meaning headcount reductions, and a reduction in operating expenses.

As that side of the ship is put in order Tandberg will introduce new services and software products as part of a move to provide products that represent solutions rather than components to a customer's solution. The new jewel in its product crown is the RDX removable hard drive system, offering the removability of tape and the access speed of disk. Fellow RDX reseller Dell is also reporting sparking results and Tandberg can see significant growth prospects for the product out to 2012.

Much depends upon the new share issue. Investors need to have faith that Clarke and his team can reshape the business to get rid of cost and run a tight ship while they ramp up sales, particularly in America. It's a pointed choice for them. If they don't stump up the cash then Tandberg could well go under.

Update 3 March 2008

Tandberg has said it wishes to change half of its NOK155 million bond debt into shares in a debt for equity swap as a way of reducing its large debt. Tandberg's financial advisors, Arctic Securities has been negotiating with its main creditors: Cyrus Capital; Nerland Investment; and Norsk Tillitsmann, to try and arrange this and help solve the firm's financial situation. Apparently all the bond holders need to agree to this scheme.