Quantum’s $300m acquisition of tape library manufacturer ATL Products in September 1998 has been swift to add to its bottom line. When the company reports year-end figures next month, it will show a 200% increase in digital linear tape (DLT) automation revenues with the DLT business topping $200m, up from $70m-80m a year earlier.
Higher margins on DLT products, when compared with the eroded gross margins on hard disk drives, has meant that tape has become a significant, if not major, source of Quantum’s operating profits. The company claims to have one million tape drives installed, in a market that’s expected to grow at 40% annually for the next few years. (The global tape automation business is worth an estimated $2.4bn worldwide.)
As a high-density storage option, DLT has become the de facto standard for tape back-up and archiving. The medium’s benefits are threefold. First, DLT has greater capacity than DAT tape. Second, it is more cost-efficient than the 8-mm and 4-mm helical scan technologies so long favored in Unix circles. Third, it offers high performance and solid reliability. Quantum bought in the technology during 1994 as part of its $350m acquisition of DEC’s ailing storage business. It now has exclusive worldwide manufacturing rights for DLT drives, media and tape.
ATL Products was viewed as a highly complementary business. The company was established as a strong player against StorageTek in the market for mid-range and high specification automated DLT libraries, whereas Quantum has for the most concentrated on marketing its low-end DLT autoloaders. With the ATL Products purchase, Quantum’s combined product lines now makes for a comprehensive family of tape automation devices.
A current best seller is the entry-level PowerStor L200, a single drive DLT system running eight tape cartridges, enabling data transfer speeds of up to 54GB/hour. With a 280GB capacity, the device is targeted towards any small workgroup needing an automated back-up and archive device. From the other end of the company’s range, its high-speed 288GB/hour P3000 Series workhorse is also selling well. According to ATL CEO Kevin Daly, the system has become increasingly attractive to organizations looking to establish a consolidated high availability data store facility. The auto library system can cope with back-ups topping 11TB across 16 drives and 326 cartridges.
Thanks to its access to Quantum’s tape distributor channel, Daly claims that ATL has managed to broaden sales of all its DLT product lines. Business has slowly ramped in the distributor channel to 20% of ATL’s sales. Though he feels the mix is ‘about right’ just now he accepts future arrangements will be dictated by the balance of popularity between Unix and NT. Although there is, he says, a need at present for more OEM arrangements for the company’s single drive systems, business is likely to become more heavily biased toward the VAR chain as NT’s footprint in the market broadens. ATL has OEM arrangements with Sun, HP, Siemens- Nixdorf, EMC and Auspex and before the merger it relied exclusively and, roughly equally, on OEM deals and VAR arrangements. Last year it cleared ‘around $100m.’
Run rate this fiscal year (ending March 99) is likely to touch $220m, another solid performance following the 63% revenue rise ATL had shown for the year ending March 1998. Since its takeover in September 1998 475-strong ATL has increased the capacity of its Irvine, California HQ by 50% to allow for a dedicated 125,000 square foot tape library assembly unit. It has also taken control of Quantum’s PowerStor manufacturing facility in Colorado Springs.
Going forward, decisions will need to made over the way ATL is to address the arrival of media and drives based on Linear Tape-Open in the second half of this year. LTO is the ‘open tape architecture’ backed by Hewlett-Packard, IBM and Seagate Technology that’s set to challenge Quantum’s strong hold on the DLT market. The intention is to produce tape formats that will have multiple drive and media sources and so open up to competition a good chunk of the Quantum DLT business.
Quantum plans to meet the initiative head on. Last April it announced its own new generation of SuperDLT product line that will match the price-performance improvements being touted by LTO. The promise is that SuperDLT will offer three-fold price- performance improvements over Quantum’s current tape options, with capacities ranging from 100GB to 500 GB (uncompressed) and data transfer rates touching 10-40MB/second. By extending the capacity and data transfer rates of its tapes Quantum considers it will be in a position to offer existing DLT users the easiest of migration paths.
The most compelling reason for tape users to move to LTO or stay with DLT will of course, be price. So when the tape sector does finally become ‘open’ toward 2000 then it’s likely that the market will become even more price sensitive than it is today. And this may signal the end of such healthy margins for Quantum.
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