Overland Looks to the Future

Reeling from the loss of its biggest customer and sliding tape storage sales, Overland Storage has announced ambitious plans to compete with Network Appliance in tiered storage.

Based on its $9 million acquisition last week of data protection software start-up Zetta Systems, Overland will begin shipping a primary storage product in October as part of a three-tiered storage solution for information lifecycle management (ILM) and data protection, company officials said on a conference call Monday.

Combined with its REO disk and NEO tape backup products, the company will soon unveil “three new platforms and the software to tie it together,” said Overland CEO Christopher Carlisi.

Carlisi acknowledged that the “primary target” for backup is “moving to disk,” with tape libraries used more and more for long-term storage.

The new platforms will offer replication, virtualization, backup and scalability from a single vendor at prices “significantly under” those of NetApp, Carlisi said. He boasted that Overland has “leapfrogged” NetApp with the Zetta acquisition, and said the company expects to announce an OEM software deal next month.

But analysts and investors on the conference call, which followed the release of disappointing quarterly results, wondered whether the company can deliver on its ambitious strategy before it loses as much as half of its revenue from Hewlett-Packard a year from now. HP has opted not to purchase Overland’s next-generation midrange tape automation products when the companies’ three-year agreement expires next July.

“With Overland struggling to replace half its revenue stream and entering a new, much more competitive market, near-term difficulties and numbers coming down, we believe the company will continue to languish at low levels,” Baird analyst Daniel Renouard wrote in a research note Monday.

Overland reported a quarterly loss of 7 cents a share, well under Wall Street expectations for a 6-cent profit, as the company was plagued by an LTO3 drive shortage, production difficulties that occurred as part of a new relationship with Sanmina, lower margins and higher expenses. But the company still boasts nearly $5 a share in cash, a cushion company officials hope will carry them through the transition to higher-margin tiered storage products.

Chief Financial Officer Vern LoForti predicted “higher margins and better profitability” from the new offerings as the loss of HP’s business hits.

Overland’s stock traded 11% lower Monday following the company’s earnings release and conference call.

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