Overland Guides Under

Blames coming quarterly shortfall on weak sales at a large OEM, which everybody believes is HP

July 1, 2004

2 Min Read
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It looks as if Overland Storage Inc. (Nasdaq: OVRL) has under-performed again this quarter.

The San Diego, Calif.-based tape library company slashed its guidance by 10 percent for the quarter that ends today, blaming the shortfall on lower OEM revenue. With that big of an impact, analysts say it's likely the OEM is Hewlett-Packard Co. (NYSE: HPQ), which contributed 59 percent of Overlands revenues last quarter. Overland’s other major OEM, IBM Corp. (NYSE: IBM), accounted for only 7 percent of revenues.

Overland CEO Christopher Calisi said he now expects revenues of $54 million, down from the guidance of $60 million he gave in April. And that April figure was cut from previous guidance of $64 million after Overland failed to hit its numbers last quarter (see Overland Storage Posts Q3). Overland cut guidance for the year to $237 million, down from the $243 million forecast given in April. The company will announce its quarterly earnings on Aug. 13.

"We are disappointed with our performance for the fourth quarter,” which ends today, Calisi said in a statement.

Last quarter, HP accounted for $34.7 million of Overland’s $58.8 million revenue with IBM contributing $3.9 million. Analyst Thomas Curlin of RBC Capital Markets wrote in a research note today that he believes HP’s contribution could be 20 percent below Overland’s previous forecast. Curlin wrote that HP’s server and storage business “remains tepid due to product transition, increased competition and a realignment of the sales organization,” as well as supply chain problems.This isn’t the first time HP has been fingered for hurting a partner this quarter. Analysts have cited weak HP sales for dragging down HBA-maker Emulex Corp. (NYSE: ELX) (see Sour Outlook for Emulex).

Disappointing sales have prompted Overland to broaden its OEM relationships and increasingly rely on disk-based backup systems for revenue(see Overland Drives Disk Harder).

During Overland’s last earnings conference call in April, Calisi said he was pursuing two new OEM opportunities and looking to expand its relationship with IBM. Sources say Overland is trying to replace Advanced Digital Information Corp.'s (Nasdaq: ADIC) midrange tape library at IBM.

Like its tape competitors ADIC, Storage Technology Corp. (StorageTek) (NYSE: STK) and Quantum Corp. (NYSE: DSS), Overland is relying more on the disk market to counter a soft tape library market. (See ADIC Whips Out Big Disk, StorageTek: The Next Disk Titan?, and Quantum Digs Into Disk Backup.) Overland plans to add two disk-based backup products this summer.

“We are having serious discussions with a number of potential new OEM customers for both our tape automation solutions and our disk-based products," Calisi says. "The addition of any of these new relationships would lower the revenue concentration from our major OEM.”— Dave Raffo, Senior Editor, Byte and Switch

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