Quantum's Turnaround Helped By Rising Data Storage Interest

Date : 12/15/2010 @ 1:13PM
Source : Dow Jones News
Stock : Quantum Corp. (QTM)
Quote : 6.4  0.34 (5.61%) @ 3:59PM

Quantum's Turnaround Helped By Rising Data Storage Interest

Quantum Corp. (NYSE:QTM)
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Two years ago, you could buy a stake in Quantum Corp. (QTM) with the change in your pocket. Now, it likely would take a billion dollars to acquire the data storage provider.

Quantum's value has surged in recent quarters because of the growing demand for storage and the company's move to become a more independent provider of data products. Shares of the San Jose, Calif., company, also have seen a boost from recent acquisitions in the data storage sector, leading some to wonder if Quantum is a takeover target.

"Whether someone wants to buy us is not in our control, and we're not running the business to be acquired," Chairman and Chief Executive Rick Belluzzo said in an interview with Dow Jones Newswires.

Quantum provides storage products for data backup, recovery and archiving. Along with traditional tape storage, the company makes disk-based deduplication and replication systems, as well as software for high-performance file sharing and archiving. Deduplication technology, which eliminates multiple copies of data, is in high demand as organizations try to utilize more efficiently their storage.

While the stock has rebounded strongly, Quantum's financial turnaround has been slower. The company, based on the midpoint of its guidance, sees revenue growing 6.5% to $725 million in the fiscal year ending in March, after revenue fell 16% in the past fiscal year. In addition, Quantum's debt levels--while cut in half over the past few years--remain high, and concerns linger that the company's strength is in aging products.

Nonetheless, in light of Hewlett-Packard Co.'s (HPQ) purchase of 3Par Inc. and Dell Inc.'s (DELL) deal for Compellent Technologies Inc. (CML), industry observers have said Quantum could be an attractive target for purchasers like Hitachi Ltd. (HIT), Oracle Corp. (ORCL) and NetApp Inc. (NTAP).

Hitachi, Oracle and NetApp declined to comment.

While Quantum hasn't been pursuing a buyout, Belluzzo said that if the right offer came along, Quantum would consider it.

"It's really about what's the best outcome for the shareholder," Belluzzo said. "It's a judgment we would make depending on the situation."

Quantum, which has a market capitalization of about $817 million, has worked to transform itself from a company that primarily sells its products through partnerships with original-equipment manufacturers to one that sells its own branded products through value-added resellers.

That transformation has helped Quantum bring itself back from near death spurred by high debt levels following a pricey acquisition. Its stock fell as low as 9 cents in late 2008.

The company has made progress in paying down and refinancing its debt, and the stock has rebounded, tripling and setting three-year highs since the bidding war for 3Par began in August. And all seven analysts covering Quantum recommend buying the stock. The stock recently traded at $3.71, up 2.5%.

Belluzzo said the company, with its transformation complete, can now focus on growing revenue, which he expects to rise for the first time this year since its acquisition of Advanced Digital Information Corp. in mid-2006.

And he is confident Quantum will be able to compete with the tech giants that have been trying to provide everything from storage to servers.

"While big companies say they want to provide end-to-end offerings, customers are suspicious and don't want to put all of their eggs in one basket," Belluzzo said. "They have limited budgets and are looking for value."

Quantum sees opportunity because of market disruption from recent acquisitions, including EMC Corp.'s (EMC) purchase last year of Data Domain, Quantum's main competitor in deduplication. EMC declined to comment.

However, the company still has a large debt load on its books, and an important partnership with EMC ended when it bought Data Domain. In addition, few companies want to be involved with tape-based storage, which is about 80% of Quantum's revenue.

"Nobody wants to touch tape because it's a declining business," said Wedbush analyst Kaushik Roy, who doesn't cover Quantum. He added that the market for backup isn't growing and that while demand for deduplication is rising, most large tech companies with storage provide the technology or will soon have it.

But Belluzzo said deduplication will become "very pervasive" over the next couple of years, used in all types of storage, and the company is working to grow its disk-based storage and software offerings.

"The storage industry is a pretty significant interest [for large tech companies and customers] and is going through a lot of changes and related opportunities," Belluzzo said. "At Quantum, we worked really hard for the last few years to be well-positioned to participate in all of that."

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com


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