Quantum CEO Belluzzo Lays Out Growth Path

Quantum CEO Rick Belluzzo is just now completing the second year of a three-year turnaround effort for the once-troubled provider of backup storage products. The 25-year-old company recently acquired rival Certance and is rolling out a span of tape and disk backup products. In a conversation with Editor-in-Chief Michael Vizard, Belluzzo lays out his plans for Quantum in 2005 and--as the former head of Hewlett-Packard's printer and PC groups, delivers some advice to his former colleagues at HP.

CRN: Since you joined the company, Quantum has been a company in transition. Can you give us an update on the company's progress?

BELLUZZO: In 2001, the board and management decided to ditch the disk-drive business and then went off to create a new company around storage just as the market declined. I came on-board during the worst quarter we had had, where we lost about $15 million. So concern was growing. When I came on-board, we basically defined what I call a three-year plan. High-technology turnaround situations are hard to do because you have to do two things. It's not just simply operating better and cutting cost. You also have to think about the future, otherwise you end up making improvements for a year and then you're in trouble again. We've tried to say from the very beginning it's a three-year process. We're going to stabilize the business, we're going to make investments that will serve us in the future and then we're going to get out of this and get back to a more traditional environment.

CRN: How are you doing in terms of executing that plan?

BELLUZZO: In the first phase, we defined four things we needed to do, which included establishing clear and successful leadership around the tape drive business, growing, building some disk space backup products and then fixing the operational foundation of the company. I think that we find ourselves today in a pretty solid position. We had a good quarter last quarter, the best in three years. Instead of losing $14 million we made almost $10 million [non-GAAP]. How did we do that? We made a lot of improvement in our foundation, got on a single set of systems, integrated our organization, refinanced our debt and have taken $20 million a quarter out of our expense structure. We've also been growing the tape automation business. We grew 16 percent last quarter, faster by far than anyone in the industry. It was probably the third quarter in a row we outgrew Overland, ADIC and StorageTek.

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CRN: So are you a stable-enough company for a channel partner to trust in your longevity?

BELLUZZO: We have been profitable [non-GAAP] five out of the last six quarters. Most of the time it's been very little profit, but recently it's been more significant. We've generated cash for four consecutive quarters. We're a billion-dollar company. We're continuing to improve that performance, and our channel programs are highly valued.

CRN: Where does the acquisition of Certance fit in the plan?

BELLUZZO: The acquisition makes sense because the industry needs to consolidate. Certance was the easiest one and really the most appropriate in terms of synergies. We want to be the independent player in tape drives and media. We want to grow this business through consolidating the platforms. While other people are reducing investment here, we want to finish our investment here and have a really competitive set of products. We're going to innovate around the way disk software and tape service solutions come together.

CRN: Are there more acquisitions planned?

BELLUZZO: There's a lot that can still be done through software acquisitions, but right now we're growing these pieces before we take that step. We don't want to take on too much given the work that we have still to do.

CRN: How are the dynamics around selling backup storage products changing?

BELLUZZO: Increasingly, we've seen storage become centralized in large and small companies. People are using products more effectively as they bring storage together. It use to be this model where tape drives were just an add-on to servers. That's diminishing. Server attach rates are declining, and it's moving more toward network.

CRN: Where is your primary focus in the channel these days?

BELLUZZO: We've been putting more emphasis in our top-tier around our enterprise products, especially our disk-based backup and our PX series. We've been putting more emphasis there to deliver a really strong value proposition that gets their mind share because there's competition. They really can't effectively deal with more than one or two vendors and we've been trying to improve our position with some players in that area. In the enterprise tier, we have probably in the range of 20 people that we sell with. We have probably a hundred in the next tier, then we have probably a couple of thousand in the register tier, where we don't provide services.

CRN: A lot of vendors throw around the term information lifecycle management. From your perspective, what does this catch phrase actually mean?

BELLUZZO: Information life cycle management is not a product, it's a process. It's a principle that I think involves a lot of different products. We largely do tiers of storage. Ultimately, software and service is what helps put the pieces together and delivers a viable solution. If I were in the channel business, I would see this as an area of expertise. If I were a value-added reseller, I would embrace the right products, I would look for the services that I could provide to help customers make this transition.

CRN: Given that, isn't it becoming harder to separate the backup purchase from the primary disk storage purchase?

BELLUZZO: I think you get some new tools and some skills around the information life cycle management data movement that make it a different discussion, especially in the midmarket, where I don't think customers have spent a lot of time and energy thinking about this. I think the key is putting together a product offering that a channel partner can go in and say let me help you with your backup process. Backup processes are usually costly and time-consuming. I think a lot of IT people are spending money to save money. I think there's a lot of low hanging fruit to go into companies and say let me help you rearchitect this process.

CRN: Is there also an opportunity to take simpler product sets into the more traditional high-end enterprise accounts?

BELLUZZO: You could probably make a good case for downsizing expensive proprietary high-service, high-cost systems to a midrange library-type system with a disk front end. You could probably deliver better performance, and the total cost of ownership proposition is probably consummately better. We need to help people build those cases. We have tools we provide resellers to help them select products, but we have to do more around the total cost of ownership because some of these legacy products are just too expensive to operate. They're also physically large, use a lot of floor space and a lot of energy.

CRN: So if you had to list your next major set of priorities, what would they be?

BELLUZZO: Most of my energy recently has been focused on getting people signed up for this next transition. We've done the two-year work. We need to step things up. I've been doing a lot of work putting a plan in place to do that, including building and continuing to evolve the organization. We made some organizational changes recently that further the work we need to do to get the new generation of leadership in the company. And third, we've got a lot of product transition. This coming year we'll have major new product introductions in all areas. We'll be expanding and extending our disk-based products, we'll be introducing new versions, replacements and extensions. It's old-fashioned a little, but the product execution is really the piece that matters the most.

CRN: As someone who has worked at HP and is sometimes mentioned as a candidate for the CEO position, what's your best advice to HP during this time of leadership transition?

BELLUZZO: The challenge of course is the breadth of what HP does. They're broader than anyone else in the industry. They do work in consumer electronics, and they're trying to compete with IBM. Coming to grips with that diversity while taking on Dell is a critical issue for those businesses that are subject to that competition. You need to optimize around that diversity. When I was there, we did that very well--I mean my last few years there, we were executing incredibly well in the printer business, the PC business and the Unix business. We were gaining leadership in the Unix market and in the test and measurement business because we were structured to be that way. I didn't spend a lot of time when I ran the printer business worrying about anything else but competing with Epson, Canon and Lexmark. That was the whole idea that we were structured around it. Today they're all mixed up together. I think deciding what you want to keep, what you want to invest in and where you want to grow is the issue. HP is going to be subject to a lot of commoditization because that's the nature of this industry. It's just like resellers having to decide how much business they want in the low-margin area and what value-added services they can deliver so that they have a profit stream that makes sense. As a manufacturer, HP faces the same issues.

CRN: As a guy who ran the printer business for HP, what's your take on the merger of the printer and PC units?

BELLUZZO: I think that was an interesting but unnecessary move. I did that. I ran the PC and printer business and I can remember staff meetings. It was talking to one side of the table vs. the other. It was like two different conversations, maybe 20 percent of it was common and 80 percent was unique. If that's the case, it doesn't make sense.

CRN: You also did some time with Microsoft, what's your take on them?

BELLUZZO: If I look at IBM, HP and Microsoft and all these big companies, none of them has real clarity about what business they're in anymore.