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Technology Stocks : QUANTUM -- Ignore unavailable to you. Want to Upgrade?

To: Henry W Singor who wrote (8503)	2/25/1999 7:02:00 PM
From: Mark Adams	Read Replies (3) \| Respond to of 9124

Basically that QNTM was a good stock which showed a nasty trend since the most recent earnings release, that us online guys all wondered why, even in the face of the CEO pounding the table that the sector was improving. Noted that QNTM profitible prior to MKE charge. Here's a portion that is worth reading. Towards the end is a reference to greater competition in the tape segment. Analysts to Quantum Investors: Be Patient, Relief Is Coming ... Much of the charge was related to Quantum's decision to stop designing and making heads, a component of hard drives that reads the stored data from the disk. The company says the heads business had become an increasing drain on profits, siphoning $50 million off Quantum's bottom line in 1998 alone. Quantum got the disk-drive head business along with several other businesses acquired from Digital Equipment in October 1994. One of the other businesses Quantum picked up from Digital, though, has turned out to be a gem: a tape-backup technology called digital linear tape, or DLT. At the time it was acquired, DLT was one of the many proprietary formats available for tape drives, and was available only in computers made by Digital. But Quantum quickly incorporated the technology into new devices, and it is now the standard format for midrange tape products, including backup drives for servers. The technology catapulted Quantum into the No. 1 position for the last two years in terms of revenues for midrange tape products, according to International Data Corp., a Framingham, Mass., research firm. It estimates that Quantum's increased spending in DLT technology will help it grab about 42% of the tape market this year, up from 30% last year and by far the largest chunk controlled by any one company. And unlike the razor-thin profit margins for hard drives, margins on tape drives can be 15% to 30%, according to International Data analyst Robert Amatruda. Quantum's Mr. Brown says the company has sold more than a million tape drives, and credits that business with keeping the company above water during last year's market slump. What's more, he says, the growth he expects in that area should help limit Quantum's exposure to such a slump in the future. "Quite distinct from some of the other competitors, Quantum has a more diversified business because we're in the tape and tape-automation business," he says. "Those are 30% of our revenue. In a period when drive revenues were down, that helped keep us in the black." Later this year, Quantum will introduce Super DLT technology that will eventually increase storage to as much as 500 gigabytes of data from the 70 gigabytes now offered by DLT. Still, analysts say, Quantum will face its toughest challenge in recent years in the tape-drive business from a consortium of market heavy-hitters -- including International Business Machines, Seagate and Hewlett-Packard -- that is angling to design its own next-generation tape technology. "Quantum has a million installed tape units, but even at a million units you've got to say to yourself, is that enough in a business like this?" says Mr. Takata, the Gruntal analyst. What's more, analysts expect some new entrants this year into the already crowded hard-drive business, especially in low-cost drives for the sub-$1,000 computer market. "There are a lot more [companies] scrapping for business in this market," says Michael Geran, an analyst with Pershing, a division of Donaldson Lufkin & Jenrette, who has a "buy" rating on Quantum. "That's only going to increase."