Quantum Takes Aggressive Actions to Further Strengthen Its DLTtape Business
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Quantum has announced that it has signed a definitive agreement to acquire Benchmark Storage Innovations, a privately held supplier of DLTtape drives, media and autoloaders. Quantum also announced a definitive agreement to outsource its current tape drive manufacturing to Jabil Circuit, a leader in electronic manufacturing services. The actions are intended to further strengthen Quantum's DLTtape Group business by expanding its revenue and customer base through a broader product portfolio, and by improving the efficiency of its manufacturing model. In addition, the company said, the announcements build on the momentum Quantum's DLTtape Group has gained with the launch of the industry-leading SDLT 320 tape drive and also will benefit Quantum's Storage Solutions Group business and customers.
Under the terms of the agreement with Benchmark, Quantum will acquire all of Benchmark, including its tape drive and tape media products which will be integrated into Quantum's DLTtape Group. Quantum, which already holds close to a 20 percent interest in Benchmark, will pay Benchmark's other equity holders a total of approximately 13.1 million shares of Quantum stock and $11 million in cash upon closing of the transaction. In addition, Quantum will pay these equity holders up to approximately 1.9 million shares of Quantum stock if the DLTtape Group achieves certain performance milestones with the Benchmark product lines in the first year after the completion of the acquisition. Quantum expects the acquisition to close within the fourth calendar quarter of 2002 and the transaction to be accretive within the first year after closing.
The acquisition will enable Quantum to expand its DLTtape business by leveraging Benchmark's complementary products to serve the data protection needs of both new and existing customers in a part of the market beyond Quantum's current offerings. Quantum says that the purchase will allow it to marry it's leadership in providing high-performance, high-capacity tape drives with Benchmark's expertise in delivering high-quality tape products at lower price points for more value-oriented customers. This expertise has enabled Benchmark to achieve much success in a relatively short period of time. In just four years, the company has gained strong customer acceptance, shipping more than 200,000 tape drives to systems OEMs and library partners such as ADIC, Dell, HP, IBM, Overland Storage and Tandberg Data. Benchmark has also generated revenues of approximately $80 million over the last 12 months, and has achieved profitability even in the current environment of constrained IT spending.
As a result of the acquisition, Quantum says it will now be able to offer customers exceptional reliability, superior price/performance, and investment protection across an even broader line of tape drives -- ranging from 80 to 320 gigabytes of capacity (compressed) -- that includes Benchmark's new ValuSmart Tape 160. The company also says that customers will benefit from working with a single supplier and from being able to focus on a single product roadmap that leverages an installed base of nearly two million drives with over 80 million cartridges sold.
"Through Quantum's acquisition of Benchmark, it's clear that they are committed to providing a broad, scalable range of best-in-class data protection solutions to customers around the world," said Dennis Waid, president, Peripheral Research. "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. The acquisition is a win for Quantum and customers, alike." Quantum will continue to manufacture Benchmark products through Benchmark's current outsourcing partners, Mitsumi Electric and Beyonics Technology.
Quantum will outsource its current tape drive manufacturing to Jabil, which will also benefit customers. Outsourcing to Jabil will enable Quantum's DLTtape Group to reduce costs and more efficiently focus its resources on developing and delivering innovative products, while maintaining the high quality of Quantum's tape drives. Jabil is Quantum's largest and highest-rated supplier of tape drive components and has an extensive base of electronic component suppliers for inventory, manufacturing and logistics management.
Under the terms of the outsourcing agreement, Jabil will utilize Quantum's manufacturing facility in Penang, Malaysia, and purchase raw materials, work-in-process production inventory and production fixed assets from Quantum. Jabil will hire the majority of Quantum's current employees at the facility and continue manufacturing Quantum's tape drive products there. From the point of view of Quantum's customers, the transition will be seamless.
Quantum expects that it will begin to realize costs savings resulting from the outsourcing agreement next year. Later this month, Quantum will announce severance and other special charges related to the transaction that will be recorded in the current quarter.
"Quantum takes a strategic step forward by outsourcing its manufacturing to Jabil," said Robert Amatruda, research manager at IDC. "This move will allow Quantum greater operational efficiency to meet OEM customer needs."