By Stephen Phillips Quantum Corp, the data storage products vendor, last week reported a net second-quarter loss across its holdings, after acquisition costs, as price cuts in its hard drive unit offset increased sales for its tape storage systems unit. The Milpitas, California-based company posted a net $63m loss for the three months to September […]
By Stephen Phillips
Quantum Corp, the data storage products vendor, last week reported a net second-quarter loss across its holdings, after acquisition costs, as price cuts in its hard drive unit offset increased sales for its tape storage systems unit.
The Milpitas, California-based company posted a net $63m loss for the three months to September 26, compared with net income of $17.6m for the same period last year. Excluding one-time costs from the acquisition of Meridian Data Corp, clinched on September 10, and residual amortization from last-year’s purchase of ATL Products Inc, the holding company showed a $9m profit. Consolidated per-share information was not available.
Quantum split its shares into two so-called tracking stocks in July to form two separately trading companies: Quantum DLT (digital linear tape) and Storage Systems Group and Quantum Hard Disk Drive Group. Earnings for the two units were announced separately last Thursday.
The hard disk drive unit reported a widened $49m loss, equivalent to 59 cents a share, from a loss of $34.9m or 46 cents a share in the year-ago. Analysts polled by First Call, had on average been expecting a 60-cent loss per share. Including restructuring charges of $59m, the unit lost $83.7m or $1.01 a share. Quantum said the restructuring charges were above the $50m anticipated in August when the program was announced due to unexpected costs from closing certain facilities. The restructuring, which includes a 750 to 800 headcount reduction, is a response to a chastened operating environment as disk drive prices fall with the growing popularity of low-cost, pared-down PCs. The firm has complained that it was forced into the lay-offs by arch competitor, Seagate Technology Inc, which it said was offering below-cost prices on its disk drives for low cost PCs to undercut competition.
The hard drive has been used as weapon in a price war that has lowered our market cap by $2bn, Quantum CEO, Michael Brown, said last Thursday. The firm said it is looking to disk drives designed for personal video recorders (PVR), which store viewing material on a PC-like hard drive rather than removable tape, to plug revenue shortfalls. The firm trumpeted contracts with leading PVR supplier, TiVo Inc, which recently staged a very successful initial public offering on the Nasdaq stock exchange, and start-up, Replay Networks. PVR’s high-capacity storage drives boast higher profit margins than low-cost PC drives. PVRs retail for about $1,000 with TiVo paying Quantum a few hundred dollars per unit, CEO Brown said. Despite slight take-up now, 14 million homes are tipped to have PVRs by 2004, according to industry watcher Forrester Research.
Meantime, Quantum’s DLT unit posted net income, excluding one- time charges, of $58m or 34 cents per diluted share, compared to $52.14m for equivalent operations last year. Earnings matched the average of analyst forecasts collated by First Call. Revenue was up 23% year-on-year to $357m.
The unit said it increased revenue from sales of its DLT tape drives, used for data storage and backup on network servers, by 14% to $202m. Shipments of the drives, which historically have claimed around 65% of total global sales, ramped up 17% to 112,000 units. Executives said sales to one of its major OEM customers had declined but that sales across the rest of the customer base had increased by 33%. The unit expects to shift 120,000 drives in the present quarter, executives said.
The unit shipped 3.9 million tape media cartridges and drew $45m in royalty payments from its tape libraries. Revenue from storage systems sales increased 84% to $82m based on shipments from the new ATL subsidiary and Meridian Data’s Snap Server division. But it warned earlier in the month that the DLT Unit would show relatively flat earnings for the current quarter compared to the year-ago, citing reduced sales to the large OEM and a Y2K sales slowdown.
Quantum said it would channel additional funding set aside to increase its on-going stock repurchase program to $600m, into aggressively buying back shares in the DLT Unit. The unit’s share price has had 25% of its value wiped off since being launched in July. The price stood at $14.06 at close of business, Friday, up 0.45% for the day. The share price for Quantum’s hard disk drive unit was $5.93 at Friday’s close, down 2% for the day.