Quantum CEO sees the future in data storage

Angela Moore

NEW YORK: Quantum Corp. is shedding its hard disk drive unit to rival Maxtor

Corp., and plans to blaze its future in data protection and storage solutions,

despite a tech slowdown and a cruel market.

"This gives us a chance to focus on a pure play opportunity in data

protection and storage solutions," said Quantum chief executive Michael

Brown, of the $942 million deal which shareholders approved on Friday. "We

have been building this business for five or six years - it's now $1.4 billion

in revenues - we think we're focused on one of the fastest growing markets in

storage."

The deal, which was announced in October, allows Quantum to focus on selling

higher margin data storage systems that use networks to store huge amounts of

business information, instead of the highly commoditized business for the hard

disk drives that store data on PCs.

Corporations increasingly need to manage huge amounts of data generated by

business done over the Web as well as their own internal operations. In

addition, firms link to their suppliers electronically and need to store that

data as well. Brown, who joined the firm 17 years ago when he was fresh out of

graduate school, told Reuters his biggest concern about the industry is a

slowdown in information technology spending.

"People are still expecting IT spending to grow, and though its not

growing in the March quarter from what we saw in the second half of last year,

it still will grow this year," Brown said. Storage has to grow, partly

because companies still need to protect information, he said.

"If it's a bank, its financial records, if it's a hospital, it's medical

images. You have to be able to handle that increase so you have to buy storage

systems. It's a bit less discretionary than some other purchases."

Companies such as market leader EMC Corp. have become investor favorites

because of the enormous growth of data. EMC can charge customers a premium for

systems that save corporate data in such a way that it can be protected and

easily accessed over networks.

Market researchers predict that the sheer amount of information is going to

continue its leaps-and-bounds growth, and that businesses will need even more

sophisticated systems to store and manage all that data. "Storage solutions

is a strong $100 billion growth market with many strategic opportunities for

leadership," said Michael Peterson, president of Strategic Research Corp.

"Quantum is now well positioned in the center of this industry."

By contrast, hard disk drives - the spinning mechanism that control the

reading and writing of hard disks - have become mass produced commodity products

with razor-thin margins and cut-throat pricing. Quantum is still on the lookout

for purchases, Brown said.

"This whole business has been built through acquisitions, he said.

"Five years ago we were just in tape drive business, then we expanded to

tape automation, and this quarter we acquired (data storage firm) M4 Data."

Future targets would be companies with other storage hardware products, and with

software that turns those products into solutions, Brown said.

Quantum, which initially had two tracking stocks for its operations - one for

DLT & Storage Systems and another for its hard disk drive group , said last

month it expected fourth-quarter earnings and revenue for the DSS unit to be

less than expected because of a general slowdown in technology spending.

The Milpitas, Calif.-based firm has about $400 million in cash and generates

more then $200 million in cash each year, Brown said, and should see revenue

growth of about 30 per cent in the fiscal year. Brown said he decided to sell

the hard disk unit because competition was cutting into profits.

"The dynamics of that business are such that it became increasingly

difficult to meet the research and development needs, and we were spending an

equivalent amount to competitors to bring out the same product line, he said,

"so why not combine forces and create the world's largest disk drive

business? That's what Maxtor will do."

(C) Reuters Limited 2001.