Overland Struggles With 'Softness'

Backup specialist Overland is still struggling to get back on course, reporting falling revenues and widening losses in its Q3 results today. (See Overland Reports Q3 and Overland's Woes Widen.)

The vendor's quarterly revenue was $37.8 million, down from $48.2 million in the same period last year, and well below analyst estimates of $40.75 million.

Overland also reported a net loss for the quarter of $9.2 million, or 72 cents a share, compared to $7 million and 52 cents per share in the year-ago quarter. On a non-GAAP basis, analysts had estimated a loss of 47 cents.

Execs on a conference call this morning blamed the revenue decrease on "softness" in Overland's OEM business, citing a 32 percent decline in sales from the prior quarter. "Sales were softer than we expected across all geographies," said Vern LoForti, the Overland CFO, adding that many users delayed their buying decisions during the last few months. "We believe that we will be able to convert many of these [opportunities] to sales so that we will have a strong fourth quarter," he explained.

A number of storage vendors, including Sun, Isilon, and LSI, have also identified users' unwillingness to part with their cash this quarter, citing a cautious spending climate and anticipation of next-generation products. (See Sun Slips on Storage, Isilon: The Honeymoon's Over, and LSI Promises Better.)Whatever the reasons for this quarter's spending slowdown, the results cap a torrid spell for Overland. In the last couple of years the vendor was dumped by OEM partners HP and Dell, struggled with ongoing losses, and fought off a hostile takeover attempt by ADIC. (See Overland Loses HP OEM Deal, Overland Guides Under, Dell Boots Overland, ADIC Courts Overland, Overland Enacts Poison Pill , and Overland Rejects ADIC Offer.)

Overland's interim CEO Scott McClendon admitted that Overland is nowhere near out of the woods yet. (See Overland's Overture to Former Flame.) "A lot of hard work remains ahead of us," he said, adding that, while disappointed with Overland's performance, he is "not at all discouraged."

Last week, Overland announced a major restructuring effort, which included the loss of 54 jobs, or 14 percent of its workforce. "We intend to continue cost-cutting but we have no other head-count reductions planned," explained McClendon, adding that the firm will "significantly" reduce its R&D expenses next year.

The CEO provided a view into Overland's product roadmap during this morning's call, explaining that it will soon launch a high-end version of its RAID storage system, the Ultamus 4800. A third generation of the system, which uses controller technology from Xyratex, is also in the pipeline, he said. (See Overland, Xyratex in OEM Deal, and Xyratex Hits the Mark.)

Upgrades are also planned Overland's disk backup products. "We're investigating further opportunities on the software side to enhance the REO line of products," said McClendon, adding that de-duplication is also on the vendor's roadmap. (See Top Storage Predictions for 2007 and De-Dupe Vendors Shake Hands.) "We're very actively working on projects to have that capability, and we will be able to talk about that very soon," he explained.Overland is also planning to add the new LTO-4 tape drives to its ARCvault family of products, according to McClendon. (See Dell Delivers LTO-4, Maxell Ships Data Cartridge, and Imation Ships LTO 4 Cartridges.) At the moment, the vendor is testing the technologies, and expects to launch its first LTO-4 offering in the first quarter of 2008.

In recent quarters Overland has wrestled with problems at its contract manufacturer, prompting the vendor to shift manufacturing back to its own San Diego facility. "As forecasted, my mid-February, we had returned all assembly line and support functions to San Diego, and they were fully staffed and operational," said McLendon.

There was no change in Overland's share price this morning, with stock remaining stable at $3.82.

James Rogers, Senior Editor Byte and Switch