Is Quantum Safe?

11:00 AM -- Leaving the technology discussion for a bit, what about the state of a key player in the data de-duplication market? With Dell Inc. (Nasdaq: DELL)'s recent announcement of a partnership with Quantum Corp. (NYSE: QTM), a question emerged in many places, including here on the Byte and Switch forums: Is it safe to go with Quantum?

It is dangerous water to make predictions on a company's viability. Financial analysts that I talk to are careful to surround their statements with plenty of cover. But the facts are the stock has been beaten pretty badly over the past few months and it really has not seen a sustained run up for quite some time.

In fairness, stock price isnt everything. And with OEM relationships in place with Dell and EMC Corp. (NYSE: EMC), there is a silver lining in the storm clouds. The bigger concern for me is the $410 million in total debt as of Sept. 9, comprised of $250 million in acquisition debt and $160 million in convertible subordinated debt issued in 2003. Last quarter's interest payment on this debt was $7.5 million.

The main question, however, is if Quantum or any company in this situation is really safe. Well, obviously EMC and Dell think so. My guess is that there is some sort of escrow deal in place with Quantum and these two companies, where they get some sort of access to the source code if the worst-case scenario happens. EMC is full of developers, so it is fine. Dell probably has similar talent on staff, and if it doesn't it has the resources to go get them. If you are buying an EMC/Dell OEM system, I think your decision comes down to a technical one, versus the other players in the field.

Buying a Quantum system is an interesting situation to say the least. Based on their estimates and those of financial analysts that I trust, Quantum should be able to handle its debt load and be OK from a financial perspective if it can continue to meet or come close to its financial projections. One question is if the need to be careful with its money will impact the company's development of the platform, but only time will tell that story.The other fact is that even given a worst-case scenario, the company's products will continue to work. It's not like an email is sent out deactivating the system. Although possibly painful, there would be time to migrate to another platform and history has shown that competitors are quick to offer a "switch-over" program.

There also is a lot to like in the Quantum portfolio. I have always liked the StorNext system and the company's sales from devices and media continue to be a nice cash cow. It also is amazing that sales of libraries were flat quarter-to-quarter. Yes, it is amazing that flat is good, but when it comes to tape libraries -- which have had their deaths predicted way too often -- it is reassuring to see that sales still continue.

As always, customers should weight the decision criteria that matters most to their organization. Determining financial viability and long-term success is very difficult, especially now. The longer a company has been in business, the more likely it is to work its way out of tough economic pressures. But short of a government bailout, there is never a guarantee. The best course is to pick the technology that makes the most sense for your organization and then factor in business viability to make a holistic choice that makes you comfortable.

— George Crump is founder of Storage Switzerland, which provides strategic consulting and analysis to storage users, suppliers, and integrators. Prior to Storage Switzerland, he was CTO at one of the nation's largest integrators.