New report could spell trouble for Quantum

New analyst research shows that users are buying more high-end tape libraries, and DLT is in decline -- a bad sign for Quantum and ADIC.

An industry report filed in the wake of a merger between midrange tape players Quantum Corp. and Advanced Digital Information Corp. (ADIC) could spell trouble for the two suppliers, particularly when it comes to Quantum's DLT tape format.

According to a new study issued by Freeman Reports, the tape library industry "showed surprising strength" with a 10.4% rise in revenue in 2005, but it also showed a 2.6% decline in unit shipments.

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"Not surprisingly, the real story lies between the lines," said Freeman analyst Bob Abraham, the author of the report, in an e-mail to press. "The report shows that users are moving to higher capacity/performance libraries in every category … even if unit shipments were down."

Quantum and ADIC have historically been midrange players; a shift toward the high end could be a shift away from their strength. However, analysts say it may also have provided a stronger incentive for their merger.

"The … problem contributing to the merger was … perception by end users that Quantum or ADIC were not a Tier-1 storage hardware provider, that they were smaller players, servicing the midmarket, and that they didn't have the salesforce or technical support staff to scale to the Fortune 1000 enterprise needs," said Rob Stevenson, managing director of TheInfoPro, in an e-mail. "The combined company will help with this perception."

Worse for Quantum, the report by Abraham showed a sharp decrease in sales of DLT libraries, in contrast with soaring sales in LTO. LTO and half-inch cartridge library shipments and revenue rose in 2005 -- the two technologies accounted for more than 93% of total tape library revenue in 2005 and will grow that percentage to 95% by 2011, the report stated.

"Users shifted to higher capacity/higher cost libraries, specifically LTO and half-inch cartridge," Abraham wrote. Virtually every tape technology experienced a shift to higher slot count libraries, according to the report.

"Since late 2003, second and third generation LTO products have gained significant market momentum and were able to dampen acceptance of new competing SDLT libraries and AIT libraries," Abraham said.

Statistics from TheInfoPro corroborated Abraham's findings about DLT. Stevenson said 34% of respondents to TheInfoPro's recent Wave 7 survey said they planned to ad five-to-15 new high-capacity drives into their backup infrastructure in the next year, corroborating the Freeman report's findings that users were looking to bigger, faster drives. He also said the Wave 7 findings corresponded with Freeman's findings about LTO growing over DLT, with only 13% of Wave 7 respondents saying they would add DLT.

Despite the report's findings, Abraham said he remained optimistic about the performance of Quantum and ADIC.

"They both participate in every piece of the market space -- both have high-end products, even if they are relatively new in Quantum's case," he said. "They will see much more elevation, though, at the high end of the market."

Quantum responded to the report in an email to SaerchStorage: "As Freeman Report's latest data suggests, Quantum has a significant opportunity to address evolving data protection needs for customers of all sizes," said Quantum VP of marketing, Rob Pickell. "Combining the complementary strengths of our two companies will allow us to deliver a comprehensive portfolio of systems, software, devices and media to compete more effectively, especially in the higher-end of the market."

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