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August 26, 1997updated 03 Sep 2016 2:16pm

QUANTUM RECOVERS FROM POTENTIALLY DISASTROUS DEC STORAGE BUY

By CBR Staff Writer

Storage giant Quantum Corp reckons it has turned itself around in the past year, and is shouting from the rooftops that it has recovered from its potentially disastrous acquisition of Digital Equipment Corp’s storage business in 1994 (CI No 2,462). The Milpitas, California, company nearly ruined itself when it bought its way into the high-end storage market by taking on Digital’s sickly storage business. Fortunately, several plant closures, staff lay-offs and management restructures later, the company says it is on track to repeat last year’s closing performance of record profits, against losses in the previous year. The company has also significantly strengthened its balance sheet, ending the year with $345,000 cash in the bank, and having repaid all of its $350m-odd bank loan relating to the Digital acquisition. The markets were also suitably impressed, and increased the company’s value by 400% on last year. Chief executive Michael Brown admitted the company had a lot to learn from the likes of acquisitive network systems firm Cisco Systems Inc, which, he says, moves very quickly to integrate its acquisitions, and buys only companies which are smaller than, but have a similar culture to itself, in geographic areas where it already has a presence. The Digital acquisition, Brown admits, violates several of these rules, and the company paid the price, for a while. In fiscal year 1996, Quantum took a loss of $90m, on turnover of $4.42bn, but for the year to March 31 1997 it had recovered sufficient ground to make a profit of $149m on turnover up 20% at $5.32bn. The company boasts a healthy dominance in the desktop hard drive market, with around 67% of its sales coming from this high volume area, representing a worldwide market share of some 27% last year.

Diversification

However, it is acutely aware of the need for diversification, and the Digital buy was all about gaining share in the high end world of workstations, servers and low-end mini-computers. Brown is convinced that the company is now well placed to grow its higher margin high end hard disk business, where it will need to eat away at Seagate Technology Inc’s leadership position, and also its DLT Digital Linear Tape business. Brown says where Quantum differentiates itself from its competitors is in the breadth of its product range, its leading edge technology, and its manufacturing capability: the company’s tape business is making an increasing contribution to profitability, while buffering the company against seasonal downturns in the personal computer market; in the desktop arena, the company claims to be shipping more units than any of its competitors with magneto resistive head drives, a technology which enables greater storage capacity; and Quantum’s relationship with Japanese manufacturer Matsushita Kotobuki Electronics Industries Ltd, whereby the Japanese firm manufactures all of Quantum’s hard drives, enables it to ramp up production volumes as required, the company says, as does the two companies’ joint venture for manufacturing recording heads (CI No 3,162). In spite of the near disaster with Digital, which he admits was make or break for Quantum, Brown says the company would not rule out further acquisitions, but he says there is no need to rush out and buy, because he is enthused by the growth potential in Quantum’s exisiting businesses.

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