Quantum announces 1,100 layoffs, restructuring

Computerworld - Blaming an industrywide decline in server sales related to its tape drive business, Quantum Corp. announced yesterday that it laid off 1,100 employees yesterday as part of a two-phase restructuring plan. The Milpitas, Calif.-based vendor of tape storage devices, which includes tape libraries, sells products to leading hardware vendors such as Hewlett-Packard Co., EMC Corp., IBM and Sun Microsystems Inc.
Because more than half of all marketwide tape drive sales are related to storage directly attached to servers, a decline in server sales would also hit tape revenues hard, analysts said.
Revenue for Quantum's first quarter of fiscal 2003, which ended in June, totaled $211.5 million -- down $67.8 million from the same period last year and off $31.1 million from the previous quarter.
"The current market environment and our current expense structure make it necessary to take the restructuring actions that we are announcing today," Quantum CEO Rick Belluzzo said in a statement. "This will enable us to capitalize fully on our recent progress and long-term opportunities with a more competitive business model that provides sustainable growth and profitability."
As part of its plan to restructure in two phases during the next two quarters, Quantum announced last week that it will acquire Boulder, Colo.-based tape drive manufacturer Benchmark Storage Innovations Inc. to strengthen its digital linear tape (DLT) drive business (see story).
At the same time, Quantum said it would outsource its current tape drive manufacturing to Jabil Circuit Inc., an electronic manufacturing service provider in St. Petersburg, Fla. A Quantum spokeswoman said 900 of the layoffs occurred in the company's manufacturing facility in Penang, Malaysia, which Jabil Circuit will take over.
"We expect the majority of the 900 employees [will] be hired back by Jabil in Penang," the spokeswoman said.
Quantum has two primary business groups: Storage Solutions (tape automation and network-attached storage) and DLTtape (tape drives and cartridges). Both divisions will be affected by the restructuring, the company said.
"In addition, Phase 1 restructuring includes outsourcing sub-assembly manufacturing of Quantum's P-Series enterprise tape libraries, consolidating the number of development sites for disk-based backup and tape automation and centralizing support functions," Quantum said.
As a result of the restructuring, the company expects to reduce its pro forma operating expenses, excluding amortization of goodwill and restructuring expenses, by approximately 20% by the end of its fiscal year in March 2003.
The total of special charges for both phases of the restructuring is expected to be about $100 million, with slightly less than half of that amount being cash charges. Phase 1 charges are expected to be in a range of $60 million to $75 million -- mostly from write-downs of goodwill and intangibles -- and will be reflected in Quantum's fiscal second-quarter results. Phase 2 charges are still being finalized, will be announced within the next 90 days and are expected to hit the company's fiscal third-quarter results.
The $40 million to $50 million in total cash charges related to the restructuring will be largely offset by two sources of cash inflows: $11 million from the recent sale of the Quantum Technology Ventures portfolio and approximately $30 million from Jabil's purchase of Quantum's production equipment and inventory. Jabil plans to use the equipment and inventory to manufacture tape drives and tape automation products.

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