ADIC Banks on Disk

Is tape library vendor Advanced Digital Information Corp. (Nasdaq: ADIC) betting its future on a disk-based backup solution?

It appears so, from comments made during the companys quarterly earning reports. With sales of ADIC’s tape libraries and software running out of gas, executives are looking to the recently released Pathlight VX for a boost later this year.

The Pathlight VX uses ATA disk storage as well as tape to perform backups. Its release last December reflects an overall trend toward less reliance on tape and more on new, cheaper disk storage for backup (see ADIC Slips a Disk into Backup) -- although the trend hasn’t translated into big sales yet for tape vendors (see StorageTek Aims Higher).

ADIC’s income of $4.9 million, or $0.08 per share, for the quarter was up from $1.7 million, or $0.03, in the same quarter last year, but ADIC’s sales of enterprise tape libraries and standalone software were still below expectations, despite rising from last year's levels. Saying he doesn’t share other storage CEOs’ rosy spending outlook, ADIC CEO Peter van Oppen expects two more quarters of flat revenue.

“It appears the next two quarters will again be fairly similar to the first quarter, with revenue growth likely to accelerate during the second half of the year,” he said.The second half of the year is when van Oppen expects Pathlight VX sales to kick in. ADIC’s sales last quarter shifted more toward low-end tape libraries it sells through IBM Corp. (NYSE: IBM), while sales of its higher-end tape library took off more slowly than expected.

Van Oppen also said ADIC’s StorNext backup and storage management software has yet to find a broad market, and it is selling mainly in high-end vertical markets (see ADIC Upgrades StorNext).

“Our stand-alone software has not demonstrated that it is a broad-based horizontal product,” he said. “Our challenge is to take a technology that is proven in satellite reconnaissance, broadcast, these sorts of markets, and figure out how we can either package it or distribute it in a way to give it broad horizontal appeal.”

Van Oppen hopes ADIC's backup software can win broader acceptance packaged with PathLight VX. He sees market acceptance of disk backup as a challenge as well, though.

“Clearly, it’s related to our anticipated growth,” he said. “We think we'll see traction there. I can tell you that our beta sites like the product a lot, and that's always a very good sign. The challenge is that it's not an inexpensive product. It's not a straightforward sale, as is selling a tape library.”Van Oppen is optimistic enough about the disk backup system that he still forecasts $508 million in sales for the year despite two flat quarters coming up. That would make for significant sales in the second half of 2005.

The less-than-optimistic near-term picture ADIC paints is in contrast to what most storage company executives have been saying while reporting earnings lately.

“We just don’t want to get swept up in the euphoria that’s around us,” he said. “Frankly, the people I know who are in companies are positive, but the euphoria that you see externally isn’t necessarily reflected.”

Van Oppen’s outlook sharply contrasts with his own last quarter when he bragged about how sales of the high-end tape library and software were purring along, saying “the strategy is working” (see ADIC: Tape's No Rerun).

Van Oppen also said ADIC reduced headcount by around 148 in the December quarter by transferring a manufacturing facility to an outsourcing partner.

ADIC‘s stock price dropped more than 22 percent today, falling $3.79 to $13.38.— Dave Raffo, Senior Editor, Byte and Switch