Overland's Overture to Former Flame

As part of his plan to rescue Overland Storage, interim CEO Scott McClendon is looking to rekindle the firm's tape library relationship with Hewlett-Packard.

Overland's directors removed Chris Calisi as CEO in November after a 17-month period that began when Overland lost its tape OEM deal with HP, and grew worse. (See Overland Loses HP OEM Deal and Overland's Woes Widen.) Chairman McClendon returned as CEO, a post he held from 1991-2001, after spending 32 years at HP.

"My first goal is to stabilize the company," McClendon said today during the company's earnings report call.

Part of that stabilization plan is to cozy up to HP, which replaced Overland as an OEM partner for its midrange tape libraries with Quantum but continues to resell Overland NEO libraries. Overland execs say their revenue from HP hasn't dropped as much as expected, and they hope to get a bump when the next generation of LTO tape drives -- LTO-4 -- roll out this year. (See LTO Hits 1.5M Drives.)

"I'm intent on strengthening our HP relationship," McClendon said. "I believe we have the opportunity in the face of the impeding launch of the LTO-4 tape drive to stabilize revenue stream from HP, and even foster new business. I'm trying to re-establish it as total relationship, and not just a vendor-supplier relationship."Sales through HP still accounted for 46 percent of Overland's revenue last quarter, compared to 52 percent in the same quarter the previous year. But Overland's total revenue stream has dropped significantly. Overland today reported revenue of $46.8 million last quarter and $88.6 million for the past two quarters -- down from $60.6 million and $119.1 million in the comparable periods from the previous year. The company lost $8.9 million last quarter and $28.9 million over the last six months.

So Overland must convince HP or any other new potential partners that its problems are behind it. That could be difficult considering the company's recent track record.

Besides losing the HP deal, Overland blew an OEM deal with Dell because it could not produce the tape libraries in time. Overland also purchased software startup Zetta Systems for $9 million in August 2005 only to write off the investment last October, and then failed to meet the deadline for the European Union's Restriction of Hazardous Substances (ROHS) environmental directive. (See Overland Loses Another Partner and Overland Overtakes Zetta .)

Overland hopes to fix production problems by moving manufacturing back to its San Diego facility. McClendon says that project is nearly complete. He also says the other major part of Overland's rebound will be to beef up its tape, disk, and software products.

He pointed to several coming rollouts, including:

Dave Raffo, News Editor, Byte and Switch