Tape Guys Look for Answers

Tape vendors feeling the pinch of sagging sales and the encroachment of disk backup are searching for ways to reverse poor results.

Quantum Corp. (NYSE: DSS), which barely broke even last quarter and recently announced its second layoff in less than a year, this week revised its product strategy to try and better compete in the tape drive market. (See Quantum Gives Prelim Results, Quantum to Thin Ranks Again, and Quantum Outlines Tape Strategy.)

Overland Storage Inc. (Nasdaq: OVRL) this week announced an outsourcing plan that will reduce one third of its staff, and also rolled out a bigger disk backup device in hopes of growing that end of its business after total revenue came in below analyst expectations the last two quarters (see Overland to Layoff One Third).

The two companies face different challenges, so theyre pursuing different plans of attack. Quantum is battling not only disk, but is riding the trailing horse in the tape format race. Sales of its Super Digital Linear Tape (SDLT) have fallen steadily, while sales of the rival Linear Tape Open (LTO) standard backed by IBM Corp. (NYSE: IBM), Hewlett-Packard Co. (NYSE: HPQ), and Certance LLC are on the rise.

According to tape market research firm Freeman Reports, LTO tape library revenue outpaced SDLT by more than a three-to-one margin in 2003. Quantum’s answer is to cede speed to LTO, while increasing capacity of its SDLT format.Quantum also has a disk-backup family, the DX series. But Quantum does not break out disk revenues, and industry sources say DX devices are not selling well (see Quantum Reorg Carves Off 110 and Quantum Upgrades Disk-Backup System). So Quantum is pushing its tape hard now.

“We see a strong future for tape,” says Steve Berens, Quantum’s director of product strategy for its storage devices unit. “We’re departing from where the crowd is today. We’re going off to deliver the best capacity, and we’re fast enough to not be a bottleneck in the system.”

Quantum’s next-generation, high-end tape technology will be called DTL-S4, and will support 800-gigabyte capacity with speeds up to 60 Mbyte/s. It will probably ship next year. The next LTO generation, LTO-3, is expected to begin shipping late this year and will hold 400 gigabytes at speeds up to 68 Mbyte/s. Quantum’s tape also has WORM capability, which LTO probably won’t have until next year.

Quantum’s new roadmap will likely end the pattern of leap-frogging between the two standards. Over the last few years, each new generation has been faster, with more capacity than the rival's latest generation. Now it appears SDLT and LTO will have a distinct difference.

“Quantum believes it’s a capacity-driven market, and the LTO vendors believe it’s a performance-driven market,” says Bob Abraham, president of Freeman Reports.Overland’s problem isn’t LTO. As a library vendor, it sells LTO and SDLT. Its problem last quarter was poor sales through OEM HP (see Overland Guides Under). Financial analysts say HP’s tape sales are back on track this quarter.

Still, Overland’s announcement that it will lay off 140 employees at its San Diego facility as it outsources manufacturing shows it remains concerned about revenue. But the company seems farther along than Quantum in disk backup sales. When announcing last quarter’s earnings in August, Overland CEO Christopher Calisi forecast the company would get around $20 million, or 8 percent of its revenue, next year from disk. This week it launched its biggest disk-backup appliance, a 9.6-terabyte model that supports iSCSI and Fibre Channel, as do Overland’s other disk appliances.

Calisi also made it clear in August that he plans on beefing up software development for disk backup, and he said this week those plans are intact despite the layoffs.

— Dave Raffo, Senior Editor, Byte and Switch