Self-driving cars! The Quantum of some solace for ailing tape vendor

CEO Jamie Lerner is taking Quantum into vertical markets with a front and central focus on StorNext, its scale out filesystem manager. The first example is a mobile storage product designed for bulk data collection in autonomous car tests.

As I wrote at the beginning of this year, Quantum faces many challenges. 

  • It is a $450m-run-rate business from a $1bn run rate in 2007
  • Tape is its largest product business – $52.2m + $9.3m royalties last quarter – has strong revenue stream but likely to continue declining
  • DXi deduplication business – $11.7m last quarter – is a small player in a declining market
  • StorNext file management and workflow hardware/software have good niche in entertainment and media – $33.8m last quarter – but are a hard sell with lumpy business results
  • Ceph-based open-source Rook product has no immediate revenue-earning significance

And if that isn’t enough, accounting issues have delayed publication of third quarter results. The company is conducting an internal investigation into accounting irregularities and negotiating an existential re-financing.

Lerner joined Quantum in June 2018 and is the fourth CEO in eight months. The rout was triggered by CEO Jon Gacek’s departure in November 2017, following the intervention of activist investor VIEX  and a March 2017 NYSE delisting threat sidestepped by a month later by a reverse stock split.

Against this background Lerner must stabilise and grow the troubled business.

Sticky tape

Quantum’s original tape business spans drives and formats to libraries. It is  in long-term, slow decline but remains the company’s biggest revenue earner, generating $50m per quarter.

The backup-to-disk DXi deduplicating storage arrays did not ride to the rescue, as market-leading Data Domain systems stood in the way.  That said, the product lines has a $30m-$35m quarterly run rate (except for two anomalous better quarters in 2017).

Quantum’s second shot at a growth business is the StorNext scale-out storage and file management product line. Encompassing software, Xcellis disk arrays, Lattus object storage and Scalar tape libraries, this substantial but slow-growing division fails to compensate for flat or declining revenues elsewhere.

Financial charts

A couple of charts illustrate these points. First, general revenues and profit/loss by quarter. This reveals a declining revenue trend and three most recent loss-making quarters.

Second, quarterly product segment performance shows that StorNext is not the growth engine that Quantum had hoped for.

Overall, tape remains Quantum’s largest business segment, especially when royalty revenue is included.

To summarise, DXi disk backup is declining and StorNext is low growth, especially after the Q2 fy2017 great white hope quarter when revenues rose rapidly, only to fall back.

Quantum’s product moves

Faced with this, Lerner told a US IT press tour this month that StorNext can still grow by embedding the software in vertical applications that need storage and workflow integration. Examples include video and rich media where Quantum reckons it is the leader, with more than 25,000 customers worldwide.

The idea is that certain industries have formal and structured workflows with different storage needs at each stage, as this Quantum slide shows.

Quantum aims to integrate StorNext functionality with third-party products at each workflow stage. 

Quantum has identified several markets where product and workflow integration could yield growth magic. The company will update its products to support this strategy and it has kicked off with an in-vehicle data collection system.

In addition, the company plans product refreshes in early 2019 for QXS block storage and DXi backup appliances and the introduction of  Quantum an archive cloud managed service.

Quantum’s Scalar tape offerings are due for an upgrade in 2019. We understand enhancements include an on-premises presence with a public cloud-like service, featuring  elastic consumption, pay-per-use an purported operational simplicity.

According to Quantum, the tape market will grow and become a key part of cloud infrastructure. It has produced this chart showing tape is almost a third of the cost of Amazon’s Glacier, over three years.

However, this calculation pre-dates Amazon’s Glacier Deep Archive  November 2018 announcement of base storage cost that is one quarter of Glacier’s price. No doubt Quantum’s spreadsheet beancounters are busy working out if tape still comes out cheaper in a three-year Total Cost of Ownership calculation.

Quantum’s IT Press Tour  presentation lifts a 2015 quote from Aaron Ogus, Partner Development Manager at Microsoft Azure: “All cloud vendors will be using tape and will be using it at a level never seen before.”

Yes, but….Glacier Deep Archive could be based on tape but if prices are low enough it presents a long-term threat to the entire on-premises tape market.

Where next for StorNext?

StorNext v6.2 provides S3 access to its filesystem, supports Azure’s Block Blob object format, and has multi-site synchronisation. It’s also introducing cloud-based analytics software to make StorNext more efficient.

Quantum thinks that artificial intelligence application and analytics will drive demand for deep media catalogues, where StorNext could play a role. There will be strong NVMe adoption for high performance media workflows and Quantum has teamed up with Excelero to develop capabilities there.

Quantum thinks  artificial intelligence application and analytics will drive demand for deep media catalogues, where StorNext could play a role. There will be strong NVMe adoption for high performance media workflows and Quantum has teamed up with Excelero to  develop capabilities there.

Data intelligence

The company says it has evolved from offering basic storage capacity to providing data management as well. The next stage is data intelligence, locating files by content with recognition of faces and speech understanding in videos, for example.

This is a valid proposition but Quantum needs backers to marshal resources to self-fund substantial investment. Let’s see what shape the company emerges from its accounting and re-financing woes. We look forward to publication of its results.

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