RealTime IT News

A Tale of Two Tape Drive Businesses

Storage tape drive specialist Quantum Corp. late Thursday made an aggressive strategic purchase when it moved to acquire privately-held rival Benchmark Storage Innovations for about $55 million.

That price is based on transaction terms which hold that Milpitas, Calif.'s Quantum will exchange 13.1 million shares of Quantum stock and $11 million in cash. Quantum had already owned a 20 percent stake in Benchmark, which specializes in selling the DLTtape drives that Quantum created. DLTtape is a widely adopted tape platform and the de facto standard for mid-range tape backup. Tape drives are hardware devices like tape recorders that read data from and writes it onto a tape. Companies buy tape drives for backing up the massive amounts of data they create, and most of Quantum's customers are medium- to large-sized companies. Quantum competes with IBM, StorageTek and Seagate. This deal will essentially see that Benchmark is folded completely under Quantum's wing.

Interestingly, Quantum, helmed by ex-Microsoft executive Rick Belluzo, also said it will outsource its current tape drive manufacturing to Jabil Circuit.

Quantum feels these plays will only bolster its DLTtape Group business by expanding its revenue and customer base through a broader product portfolio and by improving the efficiency of its manufacturing model. Customers, Quantum said, will also benefit from working with a single supplier with an installed base of roughly two million drives with over 80 million cartridges sold. Quantum will also place greater emphasis on its so-called "super drive" -- the SDLT 320 -- which it claims provides 60 percent greater capacity, higher performance and lower cost-per-gigabyte than rivals' devices.

Benchmark has shipped more than 200,000 tape drives to systems OEMs and library partners and has generated revenues of approximately $80 million over the last year. Perhaps most impressive, it has achieved profitability in the current environment of lower IT spending.

The deal met with the approval of tape drive analysts.

"I am confident that the quality found in Benchmark's family of value-line DLTtape-based drives and media will enhance Quantum's high-performance tape drive solutions while providing customers with the industry's most reliable, dependable products for safeguarding ever-increasing volumes of business-critical data," said Dennis Waid, president Peripheral Research.

Quantum, which expects the deal to close in its fourth quarter of 2002, will continue to manufacture Benchmark products through Benchmark's current outsourcing partners, Mitsumi Electric and Beyonics Technology.