Comment Quantum's full year and fourth quarter results came in pretty much as expected, but they do position the storage company for interesting possibilities and Motley Fool picked up on one of those; a NetApp acquisition of Quantum.
The fourth quarter fiscal 2011 Quantum results showed revenues of $165m, up marginally on the year-ago quarter's $164.5m, with a net loss of $2m, much improved on the year-ago's $4m net loss.
The full year results revealed a much better pattern; revenues of $672m, down one per cent on fiscal 2010, and net income of $5m, down substantially on the prior year's $17m. Still Quantum has made a profit for two years running; it's paid off a lot of debt ($100m in fiscal 2011) and grown its branded revenue as the OEM tape business continues its apparent death march.
DXi revenues were up 43 per cent year-on-year, although high-end DXi 8500 revenues stalled, general branded (vs OEM) revenue was up five per cent, StorNext was up 28 per cent, and branded tape automation down two per cent. StorNext revenues only grew 14 per cent in the fourth quarter. This is slow going, although the NetApp reselling deal might accelerate things.
The question now becomes for Quantum - what next? Gacek said in the earnings call: "Our strategy, our opportunity and goals aren't dramatically different in fiscal 2012. However, I believe we are much better positioned to execute on a growth plan as we start the new year than any time since the Quantum-ADIC merger."
It's reshaping its sales force organisation and resources to better sell high-end dedupe boxes - a problem area in 2011 - and will recruit partners "who want to have an alternative to EMC Data Domain for dedupe and for Oracle on tape or want to sell StorNext for large data requirements like video." StorNext deals tend to be high-end as well, and Quantum knows it has to get better on executing on these large and longer time-scale deals.
The tape area will see product improvements: "This year, we will release significant hardware and software features for our Scalar i6000 Enterprise Library focused on large data, archive requirements, high availability and security." The second generation DXi software, the better-performing DXi 2.0, will ship on the DXi 6700 and 8500 boxes in the summer.
Also: "We will be offering source-based deduplication and a multi-protocol version of the DXi6700 with a broader range of capacity for increased scalability. We also expect to make further innovations in our DXi line during this fiscal year, including new capabilities for managing and protecting data in virtualised environments."
StorNext gets development too. "We will launch the initial members in a family of StorNext appliances that will be targeted at specific customer use cases … These new StorNext appliances will be tightly integrated with the StorNext software with optimised server and storage hardware."
This is the plan for fiscal 2012, with Gacek being surprisingly forthcoming about wanting to establish Quantum's near-term product development credentials. But how is the company going to grow once the dedupe business becomes, as it will, mature?
StorNext does not at this stage look like a huge revenue driver or product rain-maker, being more of a steady niche-seller, although Gacek said:"we expect there to be a lot of growth in StorNext as we look forward [beyond 2012]. Even so, what does Quantum do; where does it go?
NetApp could buy Quantum
The Motley Fool investing website has floated the idea of NetApp buying Quantum. Is this a completely off-the-wall idea?
The article mentions new Quantum CEO Jon Gacek's mergers and acquisitions experience at previous employer PWC. Quantum also recently appointed David Roberson to its board. He is one of the storage world's "Great and Good", having been HDS CEO and then running StorageWorks for HP where he was involved in the acquisitions of LeftHand Networks, IBRIX and 3PAR.
It begins to look as if Quantum, financially healthier than it has been for a long time, might be considering an acquisition or possibly shopping itself around.
The plus points for a NetApp buy of Quantum might be:
- NetApp can return to the virtual tape library (VTL) market which it exited after losing Data Domain to EMC. It currently has a European reseller agreement with Fujitsu to resell its CentricStor library which, ironically, uses the Quantum DXi deduplication software.
- NetApp would gain the DXi deduplication software which is a stronger technology than its own A-SIS deduplication.
- It would get the StorNext file management virtualisation software, which it is currently reselling.
- It would become a tape automation supplier which would provide NetApp with a substantial differentiating factor from EMC. With a hoped-for Quantum high-end library NetApp could compete against IBM, Oracle and SpectraLogic for petabyte and exabyte-scale data archives.
Gacek also said: "It's impossible for EMC to think about tape as being part of the solution. But most end users that are thinking cost-effectiveness, they're thinking about how to integrate with their current processes, there is a role for tape, and that's a huge differentiator for us."
- It would become a member of the LTO consortium alongside HP and IBM. Regarding tape, Gacek said: "We think tape is here for a while. As a recollection, we make a lot of money on tape. And we think we'll continue to drive profits there… The role of tape for sure is changing in backup, but there is still this long-term archive and data retention requirement that tape is very well-suited for."
- NetApp margins would increase as it is a disk shelf supplier to Quantum for the DXi 8500 via Engenio.
- The NetApp channel could boost Quantum product sales.
The potential downsides could be:
- Quantum is currently a low-growth company overall, and needs a strategy for growth.
- High-end tape automation may not be popular in cloud data centres and become a revenue loser as NetApp fails to take market share away from the incumbents.
- StorNext fails to take off.
Were NetApp to think it worthwhile then Quantum, capitalised at $707.8m, and with $78m in cash, would be affordable for NetApp and, bearing Data Domain memories in mind, there is unlikely to be a bidding war.
We have not heard anything from sources about a possible NetApp-Quantum deal, nor about Quantum either looking to buy other companies or wanting to be bought itself.
This is all speculation, but it could be that NetApp and Quantum are thinking along the same lines. ®