Quantum revisits spin-off idea, creates Snap Appliance Inc.

By Kevin Komiega, News Writer 16 Oct 2002 | SearchStorage.com

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Quantum Corp. of Milpitas, Calif., has taken a second stab at spinning off its network-attached storage division, Snap Appliance, as a separate business.

The company signed an agreement Tuesday to separate assets related to its NAS business and make them the property of a new company, Snap Appliance Inc. Snap takes with it Quantum's entry-level Snap Server and midrange Guardian product families, leaving Quantum's Storage Solutions Group to focus exclusively on data protection.

Under the terms of the agreement, Snap Appliance will purchase Quantum's NAS assets and an undisclosed but "substantial" number of employees for $11.3 million.

The new company will combine its NAS products with software technology from privately held Broadband Storage Inc. Other investors in the new company include Moore Capital Management and Mellon Ventures Inc., an affiliate of Mellon Financial Corp. The transaction is expected to close by the end of the month.

Brad Nisbet, a senior research analyst for International Data Corp.'s Storage Systems Group, Framingham, Mass., said the spin-off will keep the Snap and Guardian product lines alive.

"With about 38% share of all NAS units sold through [the first half of 2002], it's obvious these products sell rather easily, but it's difficult for any company to focus on a business unit whose profit model does not completely mesh with the rest of its core business," Nisbet said. "It absolutely makes sense to have Snap and Guardian as a separate business altogether, providing the freedom to build the company at its own pace and profitability goals."

Nisbet is not clear on how Snap and Broadband Storage's technologies will work together, but he said that distributed file systems are complex and time-consuming to develop; therefore, it is unclear how fast the two technologies can be brought together in any valuable way.

In June 2001, Quantum shelved plans to spin Snap Appliances off into a separate company. The company's CEO at the time, Michael Brown, cited a slumping economy and a lower-than-expected valuation of its NAS division as reasons for stopping the spin-off.

Brown also said the decision to stop the Snap IPO was permanent, and that the company was choosing instead to grow the NAS division under the Quantum brand name. It seems the times, along with Quantum's management team, have changed.

In a press release, Larry Orecklin, president of Quantum's storage solutions group, said that Quantum will partner with Snap Appliance to integrate product offerings: "Our customers will benefit from better NAS and data protection solutions, and our partnership will allow us to work hand-in-hand with a focused development team on complementary and simplified storage solutions."

Michael Peterson, a senior analyst for Santa Barbara, Calif.-based Strategic Research, said this is a very important move for Quantum, as it offloads a "cash hog" and opens up its ability to invest in business growth for its core markets and for new products. Peterson said Quantum is protecting its channel partners and customers.

Snap Server and Guardian's server families will continue to be available through distributor and reseller channels in North America. Quantum said it will work with Snap to ease the transition.

Snap Appliance Inc. and Quantum will continue to provide warranty and technical services for all current Quantum NAS customers.

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