Economic Conditions Stifle Storage Plans

Economic woes originating in the telecom and information technology sectors worldwide have rippled into the networked storage market, stifling a range of near-term plans.

Yesterday, for instance, Finisar Corp. (Nasdaq: FNSR) announced termination of plans to buy privately held Marlow Industries Inc., a Dallas-based maker of thermoelectric coolers (see Finisar Ends Merger Plans).

Back in February 2001, Finisar said it would purchase Marlow for $300 million in cash and stock, hoping to combine Marlow's expertise in cooling systems with Finisar's components.

Early in June, the purchase price had moved to $30 million and 12.9 million shares of common stock. Finally, talks broke down altogether this week, and Finisar blamed the telecom slowdown.

"A not-insignificant part of Marlow's revenue last year was derived from sales in the long-haul telecommunications market," says Steve Workman, Finisar's CFO. Although Finisar doesn't sell into that sector, Finisar apparently believed it important for Marlow to stay out of financial straits while the two blended their technologies.Workman says Finisar is open to working with Marlow on other projects. But as for acquiring it, all bets seem to be off.

In another failed deal, Quantum Corp. (NYSE: DSS) decided not to spin its Snap Appliances subsidiary off into an IPO. Instead, last week, the company declared that Snap, originally acquired with Quantum's purchase of Meridian Data last year, has become the network attached storage (NAS) division of Quantum.

Again, market conditions were blamed for the abandonment of the original scheme. "The market valuation for NAS was almost an order of magnitude higher than it is today [when the plan for IPO was made]," Quantum CEO Michael Brown told analysts in a conference call last week. Now, the overall difficulty of raising capital funding, as well as a slowdown in Quantum's own tape drive business thanks to weakened IT demand, have caused Quantum to back off from the plan indefinitely.

Even Snap, which should realize 55 percent growth in business overall this year, saw its revenues flatten sequentially this quarter.

What's the upshot? "While my sense is that the telecom sector is faring worse than IT in general, we're definitly in a downturn in the overall business cycle," says the previously quoted analyst. "Clearly, it's going to take a while for business conditions and stock prices to straighten out. Until then, everyone's going to suffer."When the drought will end seems anyone's guess. Obviously, many elements are involved, including demand in various markets. As to carrier spending, Byte and Switch's sister publication, Light Reading, has launched a poll (see When Will It End?): Of 114 respondents so far, 35 percent think the slowdown will end sometime this year; 45 percent sometime in 2002; 12 percent in 2003; and 1 percent sometime thereafter. Three percent think the slump will never end; 5 percent have "no idea" when it will end.

- Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com