Internet, Computer Networks Spur Sales For ADIC
By PAULA L. STEPANKOWSKY Of DOW JONES NEWSWIRES
LONGVIEW, Wash. -- The growth of networked computing, as well as use of the Internet for data and graphics, is boosting demand for data storage products made by Advanced Digital Information Corp. (ADIC).
Peter van Oppen, chairman and chief executive of the Redmond, Wash., company, said communication and information technology are combining to cause an exponential increase in the volume and value of data.
As a result, companies large and small are spending more money to organize and retrieve their data both internally and externally, van Oppen said.
"That helps us," he said. "We do business with all of those possible alternatives."
ADIC makes automated backup and storage products for workstations, servers and networks of personal computers that retrieve and protect data stored on computer networks.
ADIC has been turning in strong year-over-year growth in its core U.S. tape library storage business. In the fiscal third quarter ended July 31, ADIC's U.S. business grew 50% over a year ago and represented more than 65% of the company's global revenues.
However, the company's overall revenues were affected by slower growth in core tape library sales in Europe, as well as a decline in European sales for its large libraries and services.
Van Oppen said sales of large tape libraries are being affected as the market for them shifts from large mainframes to open-system computer server networks.
He said growth in ADIC's large tape library sector is coming from customers whose linked server capacity has grown to the point where they need mainframe-level storage capacity.
Based on backlog and visibility ADIC has now, van Oppen said he expects sales of larger tape storage products, which range in price from $250,000 to more than $1 million, to improve "significantly" in the fiscal fourth quarter and early in fiscal 2001.
Van Oppen said ADIC can serve its new large library market with its existing products. However, ADIC will invest in a new generation of products designed specifically for its large server customers.
ADIC's OEM Business Continues To Grow
ADIC continues to promote its OEM business, which accounted for 21% of all revenue in the 2000 fiscal third quarter. The company will begin shipping products under an OEM agreement with International Business Machines Corp. (IBM) in the fourth quarter, van Oppen said.
"We expect to see significant revenues from IBM in the current quarter, as well as the first fiscal quarter of 2001, he said.
With revenue from IBM, ADIC should see its OEM revenue make up 25% of total revenue, something the company had as a goal several years ago. In 1999, ADIC's revenue totaled $223.27 million. Revenues through the 2000 third quarter totaled $194.78 million.
"We don't want the branded business to atrophy, but if key OEM partners continue to want to work with us, we're not going to turn down those relationships," van Oppen said.
He added, however, that it's important for the long-term future of the company to stay in close touch with customers on the branded side of its business.
"As the technologies change rapidly, we can deliver them to market faster because we have the branded channel," he said.
Van Oppen said the addition of OEM revenue tends to bring gross margins down a little, but sales and marketing costs, on the other hand, are also down as a result. ADIC's gross margin was 33.4% of sales at the end of the fiscal third quarter, down from 35.2% of sales in the year ago period. The margin was down due to lower large library sales, van Oppen said.
Van Oppen said the company's StorNext product, its first hybrid tape/disk network storage appliance, is being well received, but the company isn't pushing hard for high-volume sales right now. He said StorNext is a new category of product and the company wants to make sure it understands the category so it can build a long-term market. Van Oppen said he expects to see significant revenue from StorNext in the 2001 fiscal year.
The company also continues to work on software that is at the foundation of its StorNext product. Van Oppen said the company is already selling some stand-alone software, but will introduce additional products in the fiscal 2001 first half.
Analysts surveyed by First Call/Thomson Financial estimate ADIC will earn a mean of 15 cents a share in the fourth quarter. That compares with operating earnings of 13 cents a share a year ago, adjusting for a stock split.
Van Oppen said fourth-quarter earnings will be in the range of those estimates provided revenue growth accelerates as the company expects. The company previously said it expects revenue growth to be the "greater of 10% sequential and 20% comparative over the next couple of quarters," van Oppen said.
After peaking at a price of 50.50 on March 1, ADIC stock was trading recently at 14.12, up from its year low of 10.25. Van Oppen said he believes slower sales of large tape libraries in the third quarter have obscured the underlying growth prospects of the company's core business for some investors.
ADIC announced it would buy back 3 million shares of its common stock at the end of the third quarter.
By Paula L. Stepankowsky, Dow Jones Newswires, 360-636-2008
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