You made two acquisitions last year. You also issued an earnings warning for this quarter. Can you discuss the announcement and will this impede you from making any further acquisitions?
To get the earnings warning out of the way. We missed our revenue goals, but not our margins. We have $343 million in the bank, so our viability is not in question. What happened this quarter was a very large OEM missed on a high estimate. We are looking at acquisitions. Last year we acquired a small hardware company and a team of Linux developers to help roll our NAS box. We will be looking to make similar acquisitions. We aren't looking to crack the primary storage market or the software package market. But, we'd be looking to make acquisitions that help sell existing product lines. We have also invested heavily in R&D, something that Wall Street might not like. Linear Tape-open (LTO) is gaining momentum. How is Quantum combating this?
If you look at our SuperDLT we have a 1-year lead on LTO. Right now we have about 71% of the tape market. That has remained steady over the past year. It's true LTO has been the fastest growing. But, they went from 0% to 16%, while we have remained at about 71% according to IDC. We never expect to have 100% of this market. But, IBM and HP would have to put all its effort into LTO to make that a bigger market than DLT. Do you see a direct competitive threat from EMC or Net App?
We are not really competing in the same segment they are. We offer backups at about $20/G Byte, while EMC and Net App are targeting larger markets, with more expensive products. Where do you efforts lie in the disk space?
We recently announced the DX30 disk-based backup system. Right now we have 40 beta customers. Veritas has been one of our beta customers. We are making sure that the DX30 interoperates with their products. Some people have asked me, "aren't you hurting yourself in the tape market with a disk solution?" The way we look at it is we are a leader in tape cartridge sales. The more disk can help a company backup, the more cartridges we can sell. Where are you focusing your R&D? Hardware? Software?
About 40% of our R&D investments are going toward software in our Storage Solutions Group. The remaining 60% of R&D in this group is going towards hardware. The Storage Solutions Group includes our tape automation, NAS, and disk-based backup products. Our other business group is the DLTtape Group, which includes our tape drives and tape media products.
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