News

posted on 16 May 2008 09:07

Quantum saw a 17 percent fall in its Q4fy08 revenues compared to Q4fy07 but the net loss was proportionally 27 percent less, which improved the picture somewhat.

It earned $228.9 million in Q4fy08, compared to $277.31 million in Q4fy07. The net loss was $14.79 (-$0.08/share) versus $20.318 million (-$0.10/share) in Q4fy07.

Quantum improved its business effectiveness faster than it lost revenues but not fast enough to compensate for the revenue decline.

The full year picture reflected the same picture but in less extreme terms, with revenue for fy08 being $975.6 million compared to fy07's $1,016 million and net loss $60.23 million (-$0.30/share) versus Q4fy07's $64.1 million (-$0.33/share).

Quantum's internal efficiency is improving as the fy08 gross margin of 32.7 percent was up from fy07's 28.9 percent.

CEO Rick Belluzzo said of the results: “Over the past year, we’ve made significant progress in improving our financial model and further refining our strategic focus to drive greater growth potential. Both our operating income and net income for FY08 were the highest they’ve been in five years, when intangible amortization, stock-based compensation, acquisition-related expenses and debt refinancing costs are excluded."

"Nevertheless, we did not meet our revenue goals for our overall branded business and disk systems and software products, and driving growth in these areas will be our top priority in the coming year."

The problem was that new product and services revenues did not make up for drastic falls in OEM sales and in tape product sales. Here are the product revenue figures:-

Quantum’s product revenue was $163 million in Q4fy08, down a whopping $46 million over FQ4’07, primarily due to a decline in OEM sales. The components of the quarter's product revenue were:

- Disk systems and software revenue was $11 million, up $3 million from FQ4’07, with sales of Quantum’s DXi3500 and DXi5500 de-duplication and replication appliances offsetting the revenue decline in the company’s legacy disk products.
- Tape automation systems revenue totaled $94 million, a decrease of $25 million from the comparable period last year, primarily related to expected declines in OEM sales.
- Revenue from devices and non-royalty media sales totaled $58 million, down $24 million from the same quarter in FY07, with nearly all the decline coming from lower device sales.
- Service revenue was $41 million, an increase of $3 million over the year-ago quarter.

Being hard and blunt about this, the expected $25 million decline in tape automation sales was not covered by disk systems revenue increase ($3 million) or from better service revenues ($3 million) and was exacerbated by lower device sales (-$24 million). What went down - $49 million - was not equalled by what went up - $6 million.

As the ADIC debt has had to be refinanced at a cost of $13 million the jam on the ADIC cake is taking a long time to arrive. This all suggests that, even if ADIC was bought primarily for its disk and deduplication technology, Quantum may have over-paid.

The Quantum/Riverbed legal dispute over that technology comes to trial in California in February next year.

What is the outlook? Belluzzo said: "Our DXi7500 enterprise disk backup system is now generally available, enabling us to provide customers with end-to-end data protection that integrates closely with tape. We feel very good about our technology leadership in this area and the partnership opportunities it provides, as reflected in our January announcement that a major OEM (EMC) would be licensing our de-duplication and replication software. Finally, we’ve taken a number of steps in the areas of engineering, sales and marketing to address the challenges we encountered over the last year and achieve greater market momentum.”

So he's expecting tape automation revenues to continue to decline, and revenues from devices and non-royalty media sales to carry on declining too. However, internal costs should continue to decrease with a consequent increase in gross margin.

But, contrary to his general policy of shifting revenue away from OEM sales towards higher-margin products, he's now pinning his hopes on OEM (EMC) sales of the dedupe and replication software.

It must seem as if he's ploughing a very hard road. The DXi7500 is late, having been announced in June last year. Tape automation sales are going downhill. Branded disk product sales are not increasing that fast at all and Quantum has had to return to the OEM margin-grinding machine for revenue. At least it's software and the inherent margin is probably much, much higher than on OEM'd tape automation products.

^{[Chris Mellor.]}