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By | Chris Mellor 16th January 2009 13:09

Storage vendor Overland on the ropes

Deepening recession forces staff and pay cuts

Savaged by the deepening recession, beleaguered NAS, disk and tape protection vendor Overland Storage has fired 53 people and instituted a ten per cent pay cut for all remaining salaried staff.

Having laid off 54 people in April 2008, loss-making Overland was in the midst of a recovery from earlier misfortunes when it bought Adaptec's SnapServer NAS business for $3.6m. Assimilating that resulted in another 53 people losing their jobs in August.

It then faced Nasdaq delisting because its share price had sunk below $1.00, and also needed extra financing to avoid running out of cash.

A $9m credit line deal was agreed in November and the company planned a reverse stock split to get its share price back up above the Nasdaq dollar limit.

Throughout this period the recession deepened. Eleven people were laid off in December when the course of the final calendar 2008 quarter became clearer, with insufficient sales revenue. The actual December sales revenues must have slumped alarmingly because Overland has now laid off another 53 people, a 13 per cut, with 258 employees remaining, and cut salaries too. The severance costs are $730,000, but there is no word on the annual savings.

In its 8K SEC filing about this, Overland says "its compensation committee is considering implementing a salary recapture plan through which each employee may earn a bonus equal to or exceeding the foregone salary depending on company performance".

Making sales is everything for Overland now. It just has to get the revenues in or it may run out of cash. There was $5.4m in hand at the end of the third calendar quarter of 2008, Overland's fy Q1'09, and that wasn't sufficient, leading to the subsequent refinancing.

Overland has been increasing its distribution channel bandwidth with, for example, Keating Technologies of Canada signed up in December. But the extra revenues generated by the expanded distribution channel haven't been enough, a point implied clearly enough by the small December and then large January headcount cuts.

The company is back on the ropes. If the next two quarters are as bad as the last one, or worse, then it will be tested to its uttermost. The fiscal Q2 '09 results statement is expected towards the end of this month and is likely to make grim reading. ®

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