Overland Data

Like other companies in its market space, Overland Data Inc. (Nasdaq: OVRL) is only too happy to sell you an automated tape library today. But what really concerns Overland is what you'll want tomorrow.

Though it hasn't announced specific plans on how it will attain its goal, the San Diego-based Overland says that making its devices more network-friendly is one of its primary tasks, going forward. Delivering on that idea might help the company justify Wall Street's optimism in Overland stock, which is rated a "Buy" by the several analysts covering the company.

The future of tape devices, as Overland sees it, has a lot in common with the current architecture of network-attached storage (NAS) devices. "We understand that [tape drives] have to become more intelligent," says Overland president and CEO Christopher Calisi. "The devices we deliver have to look more like appliances, which are a better part of a network infrastructure."

Calisi, who signed on as CEO in March, has made some aggressive moves to focus the company's business on delivering tape automation products for the mid-range market -- customers seeking gear in the 40-cartridge range. Calisi dumped a low-end product line and cut staff, actions that cost Overland a couple million dollars in expenses.

Evidence that the move to the mid-range was solid business showed up in Overland's report for its recently concluded fourth fiscal quarter of 2001 (ending June 30), when the company earned six cents per share on just more than $37 million in revenue.Richard Kugele, an analyst with Needham & Co., reiterated his "Buy" rating on Overland in a report issued in early August, giving the company credit for posting solid results in "a challenging environment."

Overland's stock, however, continues to hover in the $5 to $7 per share range, where it has been most of the summer since dropping from a 52-week high of $13.75 in February. The stock bumped up a bit in the middle of the past week, following a favorable report from Wells Fargo Van Kasper senior analyst Brion Tanous. Still, its stock price is not much higher than the company's book value, which is just less than $5 per share.

Though sales of Overland's new Neo series of automated, scalable tape libraries are going well, Calisi says the company is looking for ways to add more intelligence to its devices, to make the management of data a simpler process.

"We're actively working on issues on the software side of our business," he says. "If you look at a NAS device, that's something with a scaled-down operating system and a single-purpose application. That's the type of intelligence you will see us bundle into our products."

How that task will be be accomplished is a process Calisi isn't yet ready to divulge. Calisi does say, though, that as a way to obtain necessary software smarts, Overland is evaluating acquisition of talent as well as internal projects. And although its stock price doesn't offer much in the way of bartering strength, the company is financially solid, with just more than $10 million in cash on hand."There are many options," Calisi says. "We're doing our homework."

Overland is also hoping that the proposed merger between Hewlett-Packard Co. (NYSE: HWP) and Compaq Computer Corp. (NYSE: CPQ) goes through as planned, since Compaq OEMs Overland's products -- and currently accounts for more than 50 percent of the company's revenues, according to a report on Multex.com.

"There were a lot of smiles on our faces" when the merger was announced, Calisi says. Though Wall Street and competitors have questioned the value of the merger (see Compaq/HP Hairball), it could mean additional sales for Overland, money that might help the company move forward faster with its networking plans.

"Compaq picked the Neo over an H-P product earlier this year," says Calisi, "so we see a potentially larger market for us if the [merger] goes through."

- Paul Kapustka, Editor at Large, Byte and Switch http://www.byteandswitch.com