Overland Looks for Rebound

It was obvious that Overland Storage was in for a rough year after it lost its major OEM tape library customer last August. Today, Overland disclosed just how rough it was when it reported a $14.6 million loss.

Still, CEO Chris Calisi predicts it can return to profitability this year by moving hard into the primary storage space.

Overland's revenue of $209 million for its fiscal year that ended June 30 was down from $235.7 million last year, and the $1.07 per share compared to net income of $5.9 million or $0.41 earnings per share (EPS) last year.

Last quarter alone Overland lost $5.1 million on $41.7 million in revenue compared with a loss of $924,000 or $0.07 per share on $55.4 million in revenue a year ago.

Hewlett-Packard pulled the plug on a tape library OEM deal last August that had provided more than half of Overland's revenue. (See Overland Loses HP OEM Deal.) The expected loss was made worse last quarter due to manufacturing problems that forced Overland to start this quarter with a $5.1 million inventory backlog.Calisi surprised a lot of people when he rebuffed ADIC's overtures to acquire the company last year following HP's decision. (See ADIC Courts Overland.) Calisi maintains Overland's new disk, software, and tape products mostly aimed at SMBs will lift it out of the doldrums.

Still, Overland is in a tough situation. The tape market is shrinking. It's losing its largest OEM customer, and is entering into the disk space against established storage vendors such as EMC, Hewlett-Packard, IBM, and Network Appliance -- all aiming at the SMB market with renewed vigor. (See Low-End Customers, High Priority and IBM Debuts Low-End SANs.)

"Fiscal 2006 was challenging," Calisi admitted on a conference call with analysts today. Still, he stuck with previous claims that Overland will see bluer skies this year. "Our first goal is to return to profitability in the year ahead."

To pull that off, Overland needs to find a lot of customers for three major new products rolled out in recent months:

Now Overland has to convince customers to fork over for its new products. It's far too early to say how successful it will be, but it did land a recent deal due to its ability to offer soup-to-nuts under one brand.Roy Mowbray, systems administer for Physicians Accounting, a Milwaukee-based medical billing firm, recently replaced an Exabyte tape drive with a REO 1000 virtual tape library, NEO 2000 tape library and Ultamus Pro 500 storage appliance. The price tag was $50,000 for 1.5 Tbytes of disk capacity and tape.

"The interesting thing is they give you hardware, software, disk, and tape in one place," Mowbray says. "I don't have to worry about what maintenance contract I'm under. I looked at bigger players, but it was a matter of finding the functionality we could afford."

Now it's a question of whether Overland can find enough firms like Physicians Accounting to dig its way out of a that $14.6 million hole.

Adding to Overland's problems were inventory shortages at its company's outsourced manufacturing plant last quarter, which held up shipping tape libraries to OEM partner HP and to its Asia Pacific resellers, resulted in the $5 million backlog. Calisi says he expects the excess inventory to sell this quarter, and Overland is moving manufacturing back to its San Diego plants.

Dave Raffo, News Editor, Byte and Switch