Quantum's Move To Acquire Certance Could Reshape Landscape Of Tape Market

The move instantly catapults Quantum as the leading provider of compact tape drives, supplanting market leader Hewlett-Packard, according to Bob Abraham, an analyst at Freeman Reports, which tracks tape- and data-storage protection technology. However, HP has had a good run-up this year while Quantum and Certance are slightly down this year, making the ultimate market share for the year too close to call, according to Abraham.

Founded in the 1980s as Conner Peripherals, Certance provides tape drives based on the LTO format, a standard it helped co-develop in partnership with HP and IBM. Quantum, which also had considered joining the LTO consortium, opted instead to go with a format it favored called DLT.

"Quantum seriously considered licensing LTO," Abraham says. "They chose otherwise, and because of the success of LTO, that may not have been the right decision at the time." According to Freeman Reports, LTO sales are expected to reach $886 million. By comparison, revenues for tape solutions based on DLT and Super DLT are forecast to reach $559 million.

Quantum chairman and CEO Rick Belluzzo told VARBusiness the acquisition of Certance--and adding LTO to the mix--is complementary, and does not signal a shift away from DLT/SDLT. The company just announced a road map for enhanced tape-based products based on its preferred format.

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"We have concluded that to get critical mass, to get volumes and breadth, we needed to embrace other formats," Belluzzo says. "This is, of, course a significant move that we think gives us broader market coverage and can better serve customers, be they VARs, or distributors, end users or OEMs, with a broad range of product in one place to come."

Data Mobility Group Diane McAdam says the deal makes sense for both companies given that Quantum has struggled to gain critical mass with its DLT/SDLT technologies, while Certance has had to compete in the LTO space against the more deep-pocketed HP and IBM. "This merger makes a lot of sense for Quantum because it lets them sell both technologies," McAdam says. "There's really no overlap." LTO is better-suited for backup-and-recovery scenarios where performance is critical, where DLT and SDLT is geared more toward capacity-oriented applications such as databases.

The impact on the two companies respective channel programs remains to be seen, Belluzzo says, but presumably they will be brought together. But he argues it should mean more overall business for the channel. "We've been investing more on channels recently without the acquisition," he says. "With the acquisition, there is really a higher percentage of channel business that comes from Certance. So the channel will become more important to us, and we will become more important to the channel."

Quantum announced the agreement to acquire Certance in its quarterly earnings report for the period ended Sept. 30. Revenues of $180 million were down 4 percent over the same period last year. The company posted a $6 million loss, down from $22 million year-over-year. Quantum said Certance posted revenue of $226 million for the fiscal year ended July 2 with profits of $66 million, or 29 percent gross margin. The deal is supposed to close later this quarter.