Quantum’s problems are believed to be related to the falling price of tape, rather than the recent competition from the LTO consortium.
It expects a non-GAAP loss of around $0.04 per share and revenue of $190 to $200 million. However on a GAAP basis the losses will be much higher at around $0.23, because of charges in the FQ2 period that include $21.3 million to increase a valuation of net deferred tax assets, $2.3 million to write down a Malaysian factory, $2.5 million related to redemption of convertible debt, and other special charges of $2 million. These charges are being taken now because of the weak sales and losses over the last two quarters.
In the summer the company predicted growth on FQ1 revenue of $202 million, and a GAAP loss of only $0.05 to $0.07 per share. Those FQ1 results were themselves a disappointment as they ended a run of three quarters of growth, and were blamed mostly on falling prices of tape cartridges. This week the company blamed the same phenomenon for the FQ2 results.
Quantum charges a royalty on cartridges made to fit its hardware by third-party tape makers, which is directly proportional to the prices those cartridges sell at. Even in FQ1 when these high-profit royalties were reduced they still accounted for $55 million, down from $79 million in the previous quarter.
Quantum claimed that its FQ1 prediction had proven correct, that the reduction of cartridge inventory levels at resellers seen in that quarter would slow in FQ2.
Quantum dominated the market for mid-to-high range tape drives into which it sold its DLT hardware. The consortium of Hewlett Packard [HPQ], IBM [IBM] and Certance (formerly Seagate) however, now accounts for around two-thirds of that market, with drives made separately by the companies but to a shared LTO format.
Tape-maker Imation’s [IMN] recent entry into the mid-range may also have helped start the price war, with others having to cut their prices to compete.
This article was based on material originally published by ComputerWire.
