Overland Overtakes Zetta

Overland Storage Inc. (Nasdaq: OVRL) has shelled out $9 million cash for Zetta Systems Inc. and will release a disk-based appliance for primary storage by the middle of October 2005 (see Overland Buys Zetta).

The buy is Overland's latest bid to offset losses in tape products. The question is whether disk-based revenues will come fast enough.

Overland shopped for months and considered about a dozen companies before settling on Zetta (see Overland Sights Startup). Overland CEO Christopher Calisi says the nature of the search changed early on. "We realized hardware was not the value here. It's software that protects the data the minute it's written out that makes the difference."

Overland will use Zetta's software in a line of primary-storage appliances aimed at the low-end iSCSI and FC NAS market, competing with the likes of EqualLogic Inc., Intransa Inc., and Network Appliance Inc. (Nasdaq: NTAP).

Calisi isn't put off by this competition. As he sees it, Overland's tape and secondary backup customers that formerly opted for generic RAID gear or turned to a competitor won't be able to resist what Zetta brings: continuous data protection (CDP) and thin provisioning across Windows, Linux, and Mac OS systems running on commodity Intel-based hardware.Plus, there's the one-stop-shop factor. "Now customers can buy from a company that has all three tiers of storage," he says. "Zetta is our software engine for primary storage plus high availability."

Sounds great. The question is whether Overland can realize a benefit from this strategy quickly enough to shift its fortunes. As the market has moved from tape backup to disk, Overland's seen a dire progression of guidance reductions, layoffs, and customer losses (see Overland Underperforms).

The latest blow, the projected loss of a key tape automation OEM in Hewlett-Packard Co. (NYSE: HPQ), announced last week, leaves another $30 million hole in quarterly revenues (see Overland Loses HP OEM Deal).

Meanwhile, disk sales ramp slowly. Overland started its REO line of disk-based backup appliances in August 2003, shortly after buying Okapi Software for $5 million (see Overland Captures Okapi). But sales of REO gear still account for less than 1 percent of net revenues -- even though Calisi says REO revenues rose 77 percent sequentially for the quarter ended March 31, 2005.

Calisi acknowledges sales of the new line of Zetta-based storage kit won't be accretive to Overland until fiscal 2007, 12 months from now. That's when the loss of HP tape OEM revenues will start to show up.Bottom line? Overland's in a race against time.

Zetta Systems' 11 employees will stay in Woodinville, Wash., near Seattle. The entire management team stays intact, and Zetta CEO Ganapathy Krish” Krishnan will become a VP and chief software architect answering to Calisi.

— Mary Jander, Site Editor, Byte and Switch