Quantum To Pick Up LTO Technology In Planned Certance Acquisition

Quantum, which announced the plans during its fiscal second-quarter earnings conference call with analysts, already develops and manufactures SDLT tape drives and subsystems. LTO is important to the company because it has overtaken SDLT as the backup technology of choice among midsize businesses and enterprises.

The company is expected to pay $60 million in cash for Certance and turn about $34 million in cash from Certance's balance sheet over to Certance's current owners. The deal is expected to close this quarter.

During Quantum's earnings conference, the company reported revenue of $180 million for the quarter, ended Sept. 26, a decrease of 4 percent compared with the same quarter last year. The company lost $6 million, or 3 cents per share, in the second quarter, compared with a loss of $38 million, or 22 cents per share, a year ago.

John Thome, vice president of Chi, a Cleveland-based solution provider, said Quantum's acquisition is a smart move because it gives the drive manufacturer access to the faster-selling LTO products.

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But with the new product line comes R&D requirements as rivals IBM and Hewlett-Packard move forward in that space, Thome said. "Can they keep up the pace of product development?" he asked.

Thome also noted that Quantum has not had a very strong channel program and its tape library business has been slipping every year. "But if Quantum can capitalize on the acquisition and work with it, it would help them out with the channel," he said.

Rick Belluzzo, chairman and CEO of Quantum, told CRN that his goal is to do just that.

The channel is an important and growing part of Quantum's business, Belluzzo said, noting that about 45 percent of Certance's revenue came from the channel. "We're excited to have a wide product line from the low-end all the way up," he said. "It's good for our channel. ... We want this to be very channel-friendly. We want synergy."

In the past year, solution providers have been saying that Quantum's channel sales have been dropping while the company had a number of turnovers in key channel personnel.

Belluzzo said Quantum went through a change a year ago when it combined VAR-direct and distribution channel organizations. "We picked the strongest team," he said. "So solution providers may have seen some changes."

Bob Abraham, president of Freeman Reports, an Ojai, Calif.-based analyst firm specializing in the tape market, said the Certance acquisition could help Quantum hold on to the high end.

Quantum was not going to succeed on the basis of its DLT and SDLT business, Abraham said. "So, rightly so, they looked at other technology," he said.

In the short term, it's the low-end technology, not LTO, that will drive Quantum's growth, Abraham said. But in the long term, LTO will be a major driver, he said.

In addition to these two key high-end technologies, Quantum brings a lower-end line of DLT VS tape drives it got with its acquisition of Benchmark Storage Innovations two years ago. Meanwhile, Certance brings low-end compact tape technologies such as Travan, DDS-4, and DAT-72 to the mix.

Certance's Travan tape product line has been slipping slowly, but its DDS-4 and DAT-72 lines are both definitely growing, Abraham said. DAT-72 is the name of what was once called DDS-5. However, the name was changed when Sony, another producer of DDS-based drives, decided to drop the technology. HP also produces DDS-based tape drives.

Certance, which was a part of Seagate before being spun off into a privately-held company, came to market with LTO drives after HP and IBM. Its drive performance was generally a bit lower than that of its rivals, but its drives were priced accordingly, Abraham said.

Two months ago, Quantum introduced its DLT-S line of tape drives into its road map. Unlike SDLT before it, and unlike the LTO line, DLT-S will be focused on capacity instead of highest performance going forward, Quantum executives said at the time.

That makes sense, said Robert Scroop, vice president and general manager of tape automation at Overland Storage. The San Diego-based vendor of tape-automation products uses Quantum tape drives in some of its products.

Speaking before a group of solution providers at the company's annual channel summit in San Diego two weeks ago, Scroop said that Quantum's move to focus on capacity was appropriate given that the push to use disk-based backup subsystems for high-speed backups is accelerating.

Quantum and the three LTO tape drive providers had been leapfrogging each other in terms of capacity and performance, Scroop said. However, with DLT-S, he expected Quantum to have a 2-to-1 capacity advantage over LTO starting in 2005 and continuing into the foreseeable future.

"This is the first sign [that] a tape manufacturer recognizes that the role of tape has changed," Scroop said.