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Quantum hopes new technology will heal fiscal wounds

After a year of hemorrhaging revenues, the CEO of Quantum has a plan to hoist the tape maker back to the top of the tape market by relying on new technologies to improve the company's bottom line.

It's been a choppy first year at the helm of Quantum Corp. After two consecutive quarters of economic disappointment, CEO Rick Belluzzo says the company is taking more than a handful of steps to return to profitability.

"We've identified about seven things we need to do to get back to profitability," Belluzzo said. "We'll be looking to new product growth, reducing cost structure, [internal] operations and the tape media pricing issue, among other things that the management team has identified."

San Jose, Calif.-based Quantum announced its latest financial results last month, and based on the numbers, the tape manufacturer looks like it has a long way to go before it will be able to right its fiscal ship. Quantum recorded a loss of $38 million for its second quarter on revenues of $195 million. The results were Quantum's worst since the second quarter of 2002, which saw revenue of $204 million and a loss of $111 million. Quantum has not made a profit since its third quarter of 2002.

Belluzzo admits that recent, aggressive tape media pricing in the industry has led Quantum to lose some revenue, but he sees that as a short-term problem that the company cannot control. He says some of the newer media that Quantum will license, such as SDLT600 and DLT VS 160, will be more favorable for the company in the long term.

Belluzzo said he'll also be looking to increased OEM relationships with some of the storage heavyweights, such as Hewlett-Packard Co., Sun Microsystems Inc. and EMC Corp., to get a foot into environments.

The former HP and Microsoft executive says Quantum is in phase one of its technology plan. The company is expecting new disk-based products, integrated with "cost-effective" tape aspects, to help heal the company's economic woes, a strategy that makes sense to industry observers.

"I think Quantum understands that they cannot be just a tape company but need to add more value to the tape drive business," said Dianne McAdam, senior analyst and partner at Data Mobility Group. "The DX30 has been an enhancement to the product line, so customers can rather inexpensively back up to disk (and then later to tape)."

Phase two of the process is to provide more intelligence through software at the device and systems level. New features are expected to include elements like snapshots. But don't expect Quantum to create a complete software package. Belluzzo says it would be out of character for the purely hardware company to create an extensive software package. He says he'll leave that development to the Veritases of the world.

Quantum is hoping its homegrown technologies will break its Wall Street losing streak. Quantum rolled out several products in 2003, including its DLTSage software tool, which helps diagnose where tape failures occur, the DX100 and the MAKO tape library. Belluzzo also noted that the DX30 is gaining continued traction with a 20% repurchase rate.

Even with the momentum moving in a different direction, Quantum does face external challenges, most notably from Advanced Digital Information Corp. and Overland Storage Inc. Also, McAdam notes that there will be continued pressure from the LTO vendors like IBM, Hewlett-Packard and Certance (formarly Seagate Removable Storage Solutions).

But the biggest challenge Belluzzo says he sees facing Quantum and its customers is "confusion" -- confusion about the onslaught of products and services now available to storage managers.

Let us know what you think about the story; e-mail: Mark Lewis, Site Editor.

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