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Quantum cancels Snap server spinoff

By Stephen Shankland, CNET News.com, NEWS.COM on June 14, 2001

Summary

An unappealing investment market has led storage specialist Quantum to cancel its plan to spin off its Snap server division.

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An unappealing investment market has led storage specialist Quantum to cancel its plan to spin off its Snap server division.

Quantum also warned Wednesday that quarterly profits are likely to be 29 percent to 41 percent lower than expected.

Revenue for the company's fiscal first quarter, which ends July 1, will be US$265 million to US$275 million, Quantum said, with earnings of US$0.10 to US$0.12 per share. Analysts had expected earnings of US$0.17 per share, according to First Call.

Though revenue from Quantum's tape-storage products is expected to decline from the previous quarter, the Snap division is looking comparatively good with level revenue, the company said in a statement. Snap sells standalone storage systems accessible over computer networks, a category called network-attached storage (NAS).

Quantum had hoped in October to spin off Snap in an initial public offering as part of a plan to remake the company. But these days investors are skeptical of IPOs, especially those involving business units or companies that are unprofitable, Quantum chief executive Michael Brown Said in an interview.

The company had told financial analysts it expected the Snap division to be profitable by the end of this year. "But we had made those projections before the current downturn in spending," Brown said.

The scrapped spinoff is not the only change under way at Quantum. The company sold its hard-disk business to competitor Maxtor in March, at which time Brown hinted that Snap might remain a part of Quantum.

Other transformations are afoot, Brown said. For example, Quantum will work on selling its Snap products under its own name instead of through sales partners that sell the products under their own label.

Dell is the only such partner right now, and Quantum won't add any new ones, Brown said. Instead, the company will work on finding companies that will resell the products and convincing people of the merits of the product category.

Dell has sold its versions of the Quantum products at a lower price than Quantum itself, but Quantum still likes its business partner, said Sara Spivey, Snap's vice president of marketing. "Dell continues to drive prices as low as they can," Spivey said. But despite the price gap, she said, the two companies rarely have problems with each other because they don't sell to the same customers.

That wasn't the case with Network Appliance, a higher-end NAS company Dell dumped because the business partners found themselves pitching the same buyers.

Another change: In May, Quantum canceled its Rushmore product line, systems that used large amounts of memory to simulate ultrafast hard disks. "We're exiting that business by the end of the quarter," Brown said. The funding required to develop the product meant "it was not a good payoff."

Rushmore accounted for about US$10 million a year in revenue, a small fraction of the company's US$1.4 billion in the last fiscal year, he said.

Competitors in this "solid-state disk" market include Imperial Technology.

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