Tandberg Acquires Exabyte as Tape Market Consolidates
Published: September 7, 2006
by Alex Woodie
Norwegian tape drive manufacturer Tandberg Data announced plans last week to snap up midrange tape maker Exabyte for $28 million, as the market for tape solutions continued its current wave of consolidation in the face of threats by LTO and cheap disk.
Exabyte, based in the storage hotbed of Boulder, Colorado, was one of the premier vendors of tape drives during the 1990s with its 8 mm Mammoth tape technology, which IBM sold to its customers via an OEM agreement, and later with the 8 mm VXA format, which Exabyte acquired from Ecrix. IBM also OEM'ed the VXA technology as an entry-level tape drive to its customers, primarily as a replacement for aging 4 mm DAT and DDS tape drives.
However, missteps in executing on the VXA product roadmap led to the eventual downfall of Exabyte. The company continued on for years, due to a massive customer base and the maintenance revenue that brought in. But the fact that $22.5 million of the $28 million purchase price will go to pay off debt shows how the value of the VXA technology has declined.
Now, that VXA business is in the hands of Tandberg Data, which also has an OEM agreement with IBM for its quarter-inch SLR (Scalable Linear Recording) tape drive technology, the only remaining QIC drive on the market. Tandberg, which has a U.S. office in San Diego, also manufacturers LTO gear, as did Exabyte. The acquisition is being financed by a $35 million bond loan, and is expected to be completed in the fourth quarter. The merged company is expected to have revenues of $215 million for 2006.
Tandberg didn't explicitly say what it plans to do with the VXA technology, but it will likely continue selling VXA to small and mid size businesses (SMBs), Exabyte's market sweet spot--for the time being, anyway. In explaining the rationale for the acquisition, Tandberg touted an expanded presence around the world, and an estimated $10 million in cost savings. "Tandberg Data and Exabyte complement each other well in terms of both products and markets, and will jointly take a clear second place," said Tandberg Data chief executive Gudmundur Einarsson.
Einarsson was referring to SDLT (Super Digital Linear Tape) developer and tape drive leader Quantum, which in late August completed its own $770 million acquisition of Advanced Digital Information Corp. (ADIC), a developer of disk- and tape-based backup solutions, including tape libraries incorporating LTO and SDLT technology. Quantum says it will continue to sell all current Quantum and ADIC products. Together, Quantum and ADIC did $1.2 billion in business the last four quarters.
While the tape product roadmaps of Quantum and Tandberg will likely change in the years to come, one thing is for certain: They will need to keep selling LTO gear if they want to grow their businesses.
LTO, which was co-developed by IBM, Hewlett-Packard, and Seagate in the late 1990s and introduced to the market in 2000, has become the dominant midrange tape drive format. According to the Freeman Reports, LTO libraries accounted for 81 percent of all midrange tape libraries shipped in 2005, representing for more than 46,000 units. In 2004, LTO libraries had 73 percent of the midrange tape library market, and Freeman's Bob Abraham predicts that by 2010, that share will increase to 86 percent (see "LTO Drives, Libraries Rule the Midrange Tape Storage Market").
While tape's glory days are over and disk-based backup solutions are obviously the wave of the future, tape technology is likely to remain a key part of IT shops' routines for the years to come. This is largely due to the huge growth in the amount of data that organizations are generating. Prices for disk-based systems, particularly ATA technology, are dropping, but they're not dropping fast enough to keep up with the exploding growth of demand for overall storage capacity, which is giving tape an extended lease on life.