Overland Loses Another Partner

Dell pulls out of OEM deal it never acknowledged having

October 14, 2006

3 Min Read
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Overland Storage got dumped by its second OEM partner in 14 months when Dell pulled the plug on a low-end tape partnership that was one of the worst kept secrets in the business. (See Overland Grabs New Partner and Dell Boots Overland.)

Overland Thursday night revealed Dell has terminated the OEM deal it announced in November 2005. At the time, Overland refused to reveal its partner, although industry sources pointed to Dell. Overland launched the 12- and 24-cartridge tape libraries as part of its ARCVault family in June but never met Dell's product specifications. (See Overland Unveils ARCvault.)

Overland expected the Dell deal would help it recoup some of the revenue it lost when Hewlett-Packard killed its tape library OEM deal in August 2005. (See Overland Loses HP OEM Deal.) HP accounted for more than half of Overland's revenue, which totaled $235 million in fiscal 2005 and a $209 million in fiscal 2006. The Dell deal would have been worth less, although analyst Glenn Hanus of Needham & Co. estimated it to hit $100 million in 2008.

Now Overland is out of the hardware OEM game, although HP does rebrand its VTL software on its SMB virtual tape libraries (VTLs). Overland will try to rebound by pushing its brand tape and disk backup products and an upcoming line of RAID storage through the channel.

The Dell deal fell through because Overland was far behind schedule with the libraries, originally set to ship early this year."We have always stated that OEM contracts are very sensitive and subject to delay, modification or termination," Overland CEO Chris Calisi said in a statement. "Although the Dell program experienced some delays during the evaluation unit phase, the Overland and Dell teams remained fully engaged and up to this moment had been actively working together to achieve manufacturing readiness of the products."

For its part, Dell still refuses to divulge it ever had a deal with Overland. When asked if it would replace Overland with another OEM or scrap the product, a Dell spokesman emailed back: "We don't comment on speculation regarding supplier relationships or product roadmaps."

One Overland customer today said he doesn't care about the company's OEM relationships, as long as its products perform. "We prefer to go through our channel partner," says Jeff Mery, storage manager for a manufacturing firm. "All I care about is if I get good performance value."

Another customer who recently purchased Overland tape and disk products was also willing to cut the company slack. "I'd rather have a product released and solid than just released to make a deal," says Nathan Johnson, IT manger at Seattle-based tech consulting firm Prowess Consulting. "If they're going to have a solid product with little or no bugs, it's better than risking issues."

Still, blowing the Dell deal is another troubling sign for Overland. The company lost $14.6 million last year, and fought off a hostile takeover attempt by ADIC. (See ADIC Courts Overland.)Investors certainly didn't shrug off the news. Overland's stock price fell more than 16 percent to $5.53 today, and RBC Capital Markets downgraded its shares from outperform to sector perform.

"Having undergone consecutive transitional quarters, investors were patiently awaiting a transition to turnaround status as the Dell business ramped," RBC's Tom Curlin wrote in a note to clients. He added, "We now value the company as a takeout candidate."

There is one less candidate to take them out, though. Its former suitor ADIC was bought by Quantum for $770 million in May, and Quantum CEO Rick Belluzzo says he isn't expecting to make any acquisitions any time soon. (See Rick Belluzzo, CEO, Quantum and Quantum Takes Tape Rival ADIC.)

Dave Raffo, News Editor, Byte and Switch

  • Dell Inc. (Nasdaq: DELL)

  • Hewlett-Packard Co. (NYSE: HPQ)

  • Overland Storage Inc. (Nasdaq: OVRL)

  • Needham & Co.

  • Quantum Corp. (NYSE: QTM)

  • RBC Capital Markets

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