Advanced Digital Rides Data-Storage Wave, CEO Says
By PAULA L. STEPANKOWSKY Of DOW JONES NEWSWIRES
LONGVIEW, Wash. -- Corporate information-technology spending overall may still be sluggish, but spending for data storage is accelerating at a quick pace, something that is helping Advanced Digital Information Corp. (ADIC) post strong sales gains, said Peter van Oppen, chairman and chief executive.
Driving sales growth for the Redmond, Wash., company in 2003 is an end to excess data-storage capacity left over from the late 1990s combined with ever-increasing data-storage needs. Sales in the fiscal 2003 second quarter, ended April 30, were up 25% over the year-ago period.
"The amount of data people have to cope with is growing by 50%," van Oppen said in an interview. "Those trends are not sensitive to the economy."
On the consumer side, digitization of music, movies, slides, family pictures and other information is spurring the need to store data.
"Things that were once analog or had nothing to do with the computer are all requiring more data storage," van Oppen said.
Corporate data-storage use has increased due to new regulations governing document retention and data backup needs. Governmental agencies have increased needs as the result of new homeland security measures, van Oppen said.
"The litigation environment is such that companies are more cognizant that they must retain data and be able to find it," van Oppen said.
At the same time that demand is increasing, rapid growth in bandwidth capacity has brought down the price to use it - stimulating further growth, van Oppen said.
ADIC makes automated backup and storage products for work stations, servers and networks of personal computers that retrieve and protect data, video and graphics stored on computer networks.
ADIC markets its products under its own brand and through original equipment manufacturer agreements with other companies. Major OEM customers include Dell Inc. (DELL), International Business Machines (IBM), Hewlett-Packard (HWO), Sun Microsystems (SUNW), Cray Inc. (CRAY) and Fujitsu-Siemens.
Van Oppen declined to comment on earnings eatimates.
Analysts surveyed by Thomson First Call estimate ADIC will earn 3 cents a share in the 2003 third quarter. The company has said it expects third-quarter sales of between $95 million and $105 million.
In the 2002 fiscal third quarter, ADIC showed a net loss of $2.1 million, or 3 cents a share, on sales of $76 million.
Analysts estimate ADIC will earn 16 cents for the 2003 fiscal year ending Oct. 31. In 2002, ADIC earned $1.6 million, or 2 cents a share, on sales of $338 million.
Research Investment Now Paying Off
During the IT downturn of the last three years, ADIC increased the money it spent to research new products even while its sales and profits were declining. The company had enough cash to see it through the development of several key products, van Oppen said.
"We said storage is going to expand like crazy - we shouldn't cut back, we should spend during a recession," van Oppen said.
ADIC spent $32.2 million on research and development in fiscal 2002, up from $27.7 million in 2001 and $19.9 million in 2000. This fiscal year, the company will spend more than $40 million.
ADIC spent the money expanding its product line to include hardware and software aimed at large corporations. These new products, including the recently introduced Scalar i2000, have higher margins than ADIC's middle and low-market products.
As a result, gross profit as a percentage of sales was 32.7% in the fiscal second quarter, up from 30.7% in the first quarter and 26% a year ago.
"As revenue starts to recover, you get the double bang of better margins and better revenue," van Oppen said.
ADIC has a number of competitors across its product lines. In the open systems tape-automation category, van Oppen said ADIC is the market leader, although competitors StorageTek, Hewlett-Packard, IBM and Quantum Corp. (DSS) each have a share.
In storage, ADIC's major competitors include EMC Corp. (EMC), Legato Systems (LGTO) and Computer Associates (CA).
ADIC's competitive strategy relies on its new products, such as the Scalar i2000. The Scalar i2000 is a new platform that combines a variety of software and hardware technology that ADIC had previously sold separately.
The company is also working on a new product that will include both disc and tape storage to be released later this year.
"I don't believe there is another player that has all those pieces," van Oppen said.
On a geographic basis, ADIC is seeing its business in Asia and China recover in the third quarter after some slowing in the second quarter due to the SARS virus, van Oppen said. |
