Adaptec Agonistes

Lowers guidance for fourth straight quarter while dealing with internal transition

June 30, 2005

3 Min Read
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Adaptec Inc. (Nasdaq: ADPT) says its slump has extended for the fourth straight quarter, in the wake of management disarray and sales struggles.

Adaptec issued preliminary earnings for this quarter Tuesday night, putting revenue at $103 million to $106 million -- below its previous guidance of $114 million to $117 million. The warning marks the fourth straight quarter that Adaptec has adjusted guidance downward, and its new revenue forecast marks a decrease both sequentially and year-over-year (see Adaptec Unveils OEM, Revs Guidance, Adaptec Lowers Guidance , and Storage Suppliers Mix Messages). Adaptec reported revenue of $111.2 million last quarter and $115.5 million in the same quarter last year. The current quarter ends Thursday.

Adaptecs original guidance in April anticipated hard-drive shortages and a slower ramp of OEM sales through IBM Corp. (NYSE: IBM), though the company expected higher components revenues this quarter. Now Adaptec says it was hurt by poor sales to OEM and channel customers this quarter, along with a decline in prices for its components as the market shifts to lower-cost SATA drives.

Adaptec sells storage components as well as SAN and NAS systems. OEM and channel revenues make up more than 90 percent of its business. IBM is Adaptec’s biggest OEM partner, and poor OEM sales suggests the DS300 and DS400 low-end SANs that Adaptec supplies to IBM have not yet taken off.

On the components front, Adaptec could be losing business to LSI Logic Corp. (NYSE: LSI), which earlier this month increased its revenue forecast, citing strong sales of storage components (see LSI Logic Improves Forecast).“While we knew that April and May were slow months for Adaptec, it is disappointing to see that business did not ramp to a level in June that would allow Adaptec to reach its previous targets,” analyst Wes Cummins of B. Riley & Co. Inc. wrote today in a note to clients. “We had expected last quarter to be a low point for the company as they worked through several issues including the late delivery of system products to IBM and an enterprise drive shortage in the industry.”

The extended slump comes as Adaptec searches for a CEO to replace Bob Stephens, who retired in May (see Adaptec CEO Retires). Adaptec board member D. Scott Mercer is serving as interim CEO. Industry insiders suspect the permanent job may go to Sundi Sundaresh, who returned to Adaptec as VP of marketing and product development May 20 and was promoted to president six days later when Stephens quit (see Former Candera CEO's Back at Adaptec). Sundaresh left Adaptec in 2002 to become CEO of storage controller startup Candera, which folded last December (see Candera's Closed).

Adaptec also lost the head of its storage group in April, when Ahmet Houssein left to become CEO of iSCSI HBA startup Silverback Systems Inc. (see Silverback Signs CEO).

The new CEO will have to try and steady a ship that began listing near the end of Stephens’s tenure. The company was late in delivering dual controller systems to IBM, and revenue from its acquisition of NAS vendor Snap Appliance were below expectations in the first three quarters following the $100 million transaction (see Adaptec's $100M Snap Decision).

— Dave Raffo, Senior Editor, Byte and Switch0

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