Quantum: Fiscal 3Q13 Financial Results

Revenue up Q/Q and down Y/Y by 8%, rebound in tape automation

Quantum Corp. reported results for the third quarter of fiscal 2013 (FQ3'13), ended Dec. 31, 2012.
Revenue for the quarter totaled $159 million, down 8% from the third quarter of fiscal 2012 (FQ3'12), primarily due to expected declines in OEM and branded tape automation revenue. However, total revenue was up $12 million, or 8%, over the prior quarter.
 
Quantum reported revenue of $41 million from disk system and software sales (including related service), a 13% increase over FQ3'12 due to record revenue from DXi disk system sales. The company also grew tape automation revenue by 25% over the prior quarter, as both midrange and enterprise sales rebounded strongly.

Quantum reported a GAAP net loss of $8 million, or 4 cents per share, for FQ3'13, compared to GAAP net income of $4 million in the same quarter of last year. On a non-GAAP basis, the company had net income of $5 million, or 2 cents per share, down from net income of $12 million a year earlier. The year-over-year declines were largely driven by the lower overall revenue. Compared to the prior quarter's results, the GAAP net loss in FQ3'13 was $4 million smaller, and the non-GAAP net income was $10 million higher.

"We improved our financial performance in the December quarter, growing revenue sequentially, driving better-than-expected non-GAAP profits and generating cash," said Jon Gacek, president and CEO of Quantum. "We also had another quarter of record DXi deduplication sales, which contributed to the 14% year-over-year increase in combined DXi and StorNext revenue we've achieved over the first three quarters of the fiscal year.

"In addition, even as we scaled back spending, we continued to invest in new, industry-leading products and solutions for protecting and managing digital content in physical, virtual, cloud and big data environments. These include our Lattus wide area storage systems, vmPRO 3.0 virtual backup software, DXi6800 deduplication appliances and Scalar i6000 HD enterprise tape libraries."
Quantum generated $6 million in cash from operating activities in FQ3'13 and ended the quarter with $55 million in cash and cash equivalents.

For 4Q2013, Quantum expects:

• Revenue of approximately $145 million to $150 million, reflecting typical seasonality, with higher sequential disk systems and software revenue.
• GAAP gross margin rate of approximately 41% and non-GAAP gross margin rate of 42%.
• GAAP operating expenses of $66 million to $68 million and non-GAAP operating expenses of $61 million to $63 million.
• Interest expense of $2.5 million and taxes of $500,000.

Business highlights for the December quarter
include the following:

• Quantum introduced a new family of wide area storage solutions, named Lattus, which provides globally distributed disk-based archives that are extremely scalable and cost-effective and allows storage of data forever on disk without interruption or migration. Integrating dispersed next-generation object storage and Quantum file system technologies, the Lattus family offers a new approach to archiving that overcomes the limitations and inefficiencies posed by traditional disk architectures in multi-petabyte storage environments. The first Lattus product, Lattus-X, began shipping in December.
• The company integrated its Q-Cloud backup and disaster recovery services with Symantec OpenStorage (OST) technology, providing NetBackup and Backup Exec customers with multiple options for leveraging Q-Cloud's services. Q-Cloud now directly supports NetBackup and Backup Exec software, enabling both backup applications to stay completely aware of all copies of data backed up to a Q-Cloud DXi appliance.
• Quantum began offering full-featured, free downloads of its vmPRO virtual machine backup software and DXi V1000 virtual deduplication appliance, providing a risk-free way to explore their superior features and value. The vmPRO Standard Edition software protects up to 1TB of virtual data and can be upgraded to vmPRO Enterprise Edition for additional capacity, making it easy for customers to adopt Quantum vmPRO and scale it to meet their growth requirements. The DXi V1000 stores up to 15TB of deduplicated data and works with vmPRO software to offer a 100% virtual data protection solution as well as a path to the cloud.
• LTO-6 technology started shipping in Quantum's Scalar i6000 and i500 tape libraries, as well as in its autoloaders, drives and media. LTO-6 nearly doubles capacity and increases transfer rates by up to 43% over LTO-5 technology, further enhancing the role of tape as an integral component of a broader tiered storage strategy.
• Quantum products continued to garner industry honors, as the DXi V1000 was named Virtualisation Product of the Year at the 2012 Storage, Virtualisation and Cloud Computing (SVC) Awards, and Quantum's StorNext data management software was recognized as runner-up in the Storage Software Appliance category. In addition, earlier this month, Storage magazine announced that the DXi V1000 is a finalist for its 2012 Product of the Year awards, and Network Computing selected the DXi6701/02 midrange deduplication appliance as a Product of the Year finalist for its upcoming awards.

HDD WW Revenue to Drop by 12% This Year - IHS iSuppli

Facing a relentless onslaught from tablets, smartphones and SSD, global HDD market revenue in 2013 will decline by about 12% this year, according to an IHS iSuppli Storage Space market brief from information and analytics provider IHS Inc.
Revenue is set to drop to an estimated $32.7 billion in 2013, down 11.8% from $37.1 billion last year. HDD revenue will be flat the following year, amounting to $32.0 billion in 2014.

"The HDD industry will face myriad challenges in 2013," said Fang Zhang, analyst for storage systems at IHS. "Shipments for desktop PCs will slip this year, while notebook sales are under pressure as consumers continue to favor smartphones and tablets. The declining price of SSDs also will allow them to take away some share from conventional HDDs."
HDD gross and operating margins likewise will decline as a result of continued price erosion.
"However, HDDs will continue to be the dominant form of storage this year, especially as demand for ultrabooks picks up and hard drives remain essential in business computing," Zhang added.
 
HDD vs. SSD
HDDs overall will maintain market dominance because of their cost advantage over SSDs, particularly when higher densities are involved and dollars per gigabyte are calculated. HDD costs and pricing are significantly lower than SSDs, with already falling HDD average selling prices expected to decline further this year by 7%.
 
Moreover, HDDs will continue to be part of storage solutions even in ultrabookss that make use of an SSD component. The solution, which cobbles HDDs together with a so-called cache SSD module, boasts of a superior price-value proposition compared to SSD-only counterparts.
A major growth area for HDDs will be the use of HDDs in the business sector spanning the enterprise space, cloud storage, big data and big-data analytics. Bearing the lowest cost of any storage medium now on the market, HDDs will remain the final destination for the majority of digital content that need to be filed away. And toward the last quarter of this year, Western Digital is expected to launch a 5TB helium HDD, catering mostly to data centers for enterprise servers and storage applications, further propelling the HDD space into overdrive.
 
Western Digital vs. Seagate
Western Digital is expected to continue battling archrival Seagate Technology for market leadership in both revenue and shipments, especially in the enterprise business segment. While Seagate had a 50% share of the enterprise market last year, the introduction by Western Digital of its new helium technology could catapult the manufacturer to the top at the end of 2013, dethroning Seagate in the process.
 
Optical drives vs. extinction
In the parallel market for PC optical disk drives - home to discs like CDs and DVDs - losses in both revenue and shipments are similarly expected. The declines stem from a number of reasons, including smaller chassis sizes for PCs, a shift in preference among consumers toward video streaming instead of using physical discs, and cost cutting from PC manufacturers that have lost interest in using optical drives.
In what appears to be a grim scenario, the optical disk drive industry is expected to encounter continued challenges this year, such as those presented by thinner PC designs. Optical drives could eventually be abandoned by PC makers altogether.

Qualstar: Fiscal 2Q13 Financial Results - Storage Revenues up 35%

Qualstar Corporation reported financial results for its second fiscal quarter ended December 31, 2012 as its transformation continues under new leadership.
Fiscal 2013 Second Quarter Financial Results
Bookings for the second fiscal quarter were $4.9 million representing 39% sequential growth over the fiscal first quarter and a book to bill of 1.46:1.
The company closed the quarter with $2.9 million in backlog with the majority to be delivered in the third fiscal quarter.
Revenues for the second quarter of fiscal 2013 were $3.4 million, compared to $3.6 million for the same quarter of fiscal 2012, a decrease of $200,000 or 5.6%, and sequentially flat to the fiscal first quarter.
GAAP net loss including restructuring charges of $511,000 or $0.04 per share was $1.7 million or $0.14 per basic and diluted share. Excluding the adjustment in labor and overhead, pro forma non-GAAP net loss was $970,000 or $0.08 per share. This compares to GAAP net loss of $971,000, or $0.08 per basic and diluted share for the second quarter of fiscal 2012.
"Our fiscal second quarter represented a turning point for Qualstar as we implemented our most important and significant steps to transition from a manufacturing-based company to a more nimble, lower overhead company focused on engineering and sales," said Larry Firestone, president and CEO. "We booked business at a rate of just under $20 million annually in the second quarter and began the third quarter with very strong backlog. Combined with the work we have done to improve gross margins and lower inventories, we believe our strategy to focus Qualstar on our core markets of storage and power supply products will result in long-term growth, sustainable profitability and increasing returns for investors."
Strategic Plan Implementation
Since last June, under Firestone's leadership, Qualstar's management has taken swift and decisive action to transform Qualstar and create sustainable value for all shareholders, including:
Initiated five-year strategic plan
Restructuring the company for greater efficiency

• Outsourced library manufacturing to CTS: Decreasing inventory and expanding gross margins
• Exited and consolidated certain facilities: Exited Canoga Park; Shrunk Boulder; Exiting the Simi valley location and moving to smaller more suitable quarters
• Reduced workforce: Exited legacy product lines and old drive technologies
• Renegotiated service contract

Fully integrated N2Power into Qualstar

• Reorganized into two engineering team
• Re-engaging resellers
• Initiated discussions with first tier 1 channel partner

Strengthened management team
and sales and engineering staff

• Bill Lurie, VP of engineering
• Steve Wagner, VP of sales for N2Power
• James Steger, Operations leadership

Delivered bookings in the annual range of $20 million
for the second quarter; above our breakeven point

Added two experienced board members

• Allen Alley
• Daniel Molhoek

Introduced new products and technology
to expand addressable market potential

• Availability of LTO-6
• Encryption Key Management for XLS
• Expandable Rack Mount Tape Libraries

Exited legacy products and technologies

• TLS and RLS 8000 - Selling below cost
• Touchless Mouse and Touchless Pointing