Could a recession be the answer?

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Could a recession be the answer?

Microscope contributor

 

by Chris Mellor

 

An incoming company is bright eyed and bushy tailed at one end of the tape market, while another at the opposite end is almost at its wits end as it struggles to avoid bankruptcy. What is going on?

 

The tape world is supposed to be in trouble. There is a steadily declining market and tape supplier consolidation under the barrage of disk-based data protection products: continuous data protection; disk-to-disk backup; virtual tape libraries; and de-duplication. They all offer more granular protection, faster back-up times, much faster restore times or, in brief, an end to the hassles of slow and unreliable tape.

 

Tandberg Data fits perfectly into that mould. It has been burned by the format consolidation in the tape world, with its SLR format losing sales. It adopted LTO and has neat products, including a half-height drive. It bought Exabyte and gained another format, VXA, and a US distribution channel.

 

But the cost was huge. One wag suggested the only result from combining two companies dropping like stones was that they sank even faster. Indeed, Tandberg has recently dropped prices on its VXA products and they look to be on the way out.

It adopted removable disk storage — ProStore’s RDX line, the same ones Dell sells — but the combination of ProStor and LTO4 could not offset falling SLR and VXA and the costs of the Exabyte acquisition. Overall revenues fell, losses of $28m (£14m) were reported and the share price fell. Tandberg became technically insolvent.

 

The CEO was fired. The chairman departed. The old CEO became the new chairman. Pat Clarke, the sales VP, became the new CEO. The bondholders, facing a near total loss of their cash if the company was liquidated, agreed a debt for equity swap. A shareholders’ EGM on 12 March agreed this too, but they had no choice, facing a wipeout of their share capital if they didn’t.

 

A new share issue should raise enough cash to soldier on for a year or so while Clarke restructures the company. Eighty people will lose their jobs. It’s probably goodbye to VXA and SLR, renewed fervour for LTO and RDX and a good look around for anything else they can punt through their channel.

 

You might think, oh, well, that’s the tape market. Tandberg was too slow into disk and got sucked down. You could be wrong. It’s Tandberg’s execution that led to its near demise and not the tape market, because a new company has entered the tape market. It’s called PivotStor and it introduced itself by offering a three-product line of LTO tape automation boxes. There is an entry-level one, a mid-range one and a high-end one, all aimed at SMEs. Is PivotStor crazy to enter the tape market at a time like this?

 

The management team says not. PivotStor will offer good quality and standard LTO3 and 4 products, with half-height drives available plus SAS connectivity. The company is 100 per cent channel and offers good margin and support.

 

That’s it. No disk-to-disk stuff, no virtual tape libraries, no flash cache, just — well, it’s Ronseal all over again. These products do what they say on the tin. PivotStor’s thing is focus. It delivers, it says, what the channel wants: good-quality and reliable products at good margin, which the channel can sell to LTO customers needing new kit.

 

PivotStor’s product introduction says it has faith in the channel sales model and faith in the longevity of the tape market and the business opportunity in it. That’s good news for Tandberg; it gives Clarke and his team confirmation that there is light at the end of their, currently, horribly dark tunnel. They have to think it’s primarily an execution issue otherwise they’d all be looking for other jobs.

 

The green issue doesn’t seem to be much use to tape automation sellers. An Overland Storage survey found that significantly fewer UK buyers rated environmental concerns in the top three buying criteria compared with French and German buyers. Overland’s Chris James thought buyers here considered most suppliers’ green claims to be greenwash.

 

Green attributes are nice but the fundamentals apply; tape is simply the most cost-effective medium for storing information that you don’t need to access now but must keep for the future. A tape automation device represents a safety deposit vault for data. Tape isn’t where data goes to die; it’s where data undergoes life-preservation.

If a recession comes, then customers will want to conserve cash. Sales of data protection products that keep your data, like tape, but offer disk access speeds may slow as buyers realise that keeping data safe is essential, but having faster access is discretionary. In a recession, tape’s fundamental value could well shine more brightly, which would be terribly nice for Tandberg and pleasing for PivotStor. Both have to execute well to grow and both are utterly dependent upon the channel.

 

 

Chris Mellor is editor at www.blocksandfiles.com


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