Tandberg Data

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Press Release

Tandberg Data announces Results for
4th Quarter of 2007

February 27, 2008

Highlights

  • Revenue for the fourth quarter was USD 47.9 million, a revenue growth of 3.1 per cent compared with the fourth quarter 2006.
  • The gross margin decreased to 20.8 per cent, from 25.0 per cent in the previous quarter, mostly due to increased inventory obsolescence in fourth quarter, some inventory build-up and a management decision not ship a large amount of product into the North American channel. This decision was made to remove a historical problem where a very high percentage of North American channel sales in every quarter happened in the last month.
  • Growth in RDX QuikStor (Removable Hard Disk Drives) sales in the channel continues and is up 40 per cent from previous quarter. IDC predict this market to be worth $500m by 2012.
  • Cost reduction program introduced by the new administration
  • Goodwill and capitalized R&D associated with the acquisition of Exabyte written down with USD 18.6 million and 0.6 million respectively.
  • New financing of NOK 38 million, out of which NOK 20M was paid in December 2007 and the remainder in January 2008.
  • Tandberg Data ASA, the parent company has lost more than 50 % of the share capital and has a negative book equity of NOK 6 million as per 31. December 2007. Tandberg Data Group had a negative equity of USD 3.4 million as per 31. December 2007 The Board of Directors has initiated actions including a proposed share issue of NOK 100 – 150 million to take place in March 2008. An extraordinary shareholder meeting is planned for March 2008. Actions are also taken to restructure loans. Furthermore, a cost reduction program is under implementation.

Operational Review

Sales through distributors
Sales through distributors amounted to USD 26.2 million the third quarter, which is an increase of USD 8.1 million compared with the corresponding quarter in 2006, but down from the USD 28.3 million reported in the second quarter this year.

Sales in the Americas increased by USD 9.1 million from third quarter 2006, primarily explained by the acquisition of the former Exabyte business. Compared with the second quarter, sales in the Americas are down with USD 2.0 million or 14.4 per cent, mainly due to a strategy change preventing quarter-end inventory build-up at discounted prices at distributors'.

In Europe, Middle East and Africa (EMEA), revenues decreased with USD 0.6 million or 6.1 per cent compared with the third quarter last year, but increased with 3.1 per cent compared with the previous quarter. The main reason for the decrease is lower sales to OEM customers.

For the Asia Pacific (APAC) region, sales revenues are down with USD 0.3 million compared with the third quarter in 2006, and with 10.9 per cent from the second quarter this year.

RDX® QuikStor was launched at the end of third quarter last year and the product has been well received in the sales channel. Compared with the previous quarter RDX sales is up 12.5 per cent.

Sales to OEM's
Sales to Original Equipment Manufacturers (OEM's), or companies that acquire Tandberg Data products to embed or sell under own brand, amounted to USD 22.8 million in the quarter, which is an increase of USD 11.7 million compared with the corresponding quarter last year, and an increase of USD 5.8 million from the previous quarter.

The OEM sales' relative share of the total revenue of 46.5 per cent this quarter is higher than the 38.0 per cent share third quarter last year, and up from the 37.4 per cent share in the previous quarter.

The OEM sales in Americas increased by USD 10.9 million, or 158.0 per cent compared with corresponding quarter in 2006 due to the acquisition of the former Exabyte business. Compared with the previous quarter, the OEM sales in Americas are up by 41.3 per cent primarily due to increased sales to a major OEM player.

Automation sales are up by 53.8 per cent compared with the third quarter last year primarily due to the acquisition of the former Exabyte business. Compared to the previous quarter, sales are down 23.1 per cent, mainly due to reduced delivery of products to distributors to prevent quarter-end inventory build-up at discounted prices and due to vacation in the Northern Europe in the quarter.

At USD 26.3 million, sales from tape drives are up from the USD 18.3 and USD 19.3 million reported in the third quarter 2006 and the second quarter 2007 respectively. The increase from previous quarter is due to material shipments according to a contract with a major OEM player.

Financial Review

Revenues and operating profit
Tandberg Data generated sales revenues of USD 47.9 million in the fourth quarter of 2007, an increase of 3.1 per cent compared with the USD 46.5 reported in the corresponding quarter in 2006, mainly due to the acquisition of Exabyte that took place in November 2006. Compared with the previous quarter, revenues are down by 2.2 per cent.

The operating loss before depreciation was USD 4.7 million in the quarter, compared with a profit of USD 3.9 million in the fourth quarter 2006 and a loss of USD 2.4 million third quarter this year.

Gross margin
Adjusted for other operating income of USD1.52 million fourth quarter 2006, the gross margin is down from 26.6 per cent in fourth quarter 2006 to 20.8 per cent this quarter. Compared with previous quarter the margin is down from 25.0 percent. This is primarily due to an adjustment for obsolescence in inventory, some inventory build-up and an unfavourable product mix.

Operating costs
Operating costs were USD 14.7 million in the fourth quarter 2007, compared with USD 9.6 million reported in the fourth quarter 2006. The operating costs are approximately the same as in previous quarter.

Depreciation
Ordinary depreciation and amortisation of acquired technology, fixed assets and product development costs is included with USD 2.2 million in the fourth quarter 2007, compared with USD 1.7 million in the fourth quarter 2006 and 2.0 million in the previous quarter. Ordinary depreciation has increased this quarter compared to the third quarter 2006 due to the purchase of Exabyte assets. Technology and development have been capitalised by USD 0.1 million during the quarter.

Assets and certain liabilities of Exabyte were acquired in November 2006. An impairment testing of the goodwill associated with the acquisition has required an impairment of 18.6 million. In addition there has been an impairment of 0.6 million of identified capitalized research and development costs at the time of acquisition.

Net financial items
Financial items were negative by USD 2.6 million in the fourth quarter 2007. Interest expenses related to the company’s interest bearing debt is included with USD 1.9 million.

Convertible bond loan and senior secured debt include certain embedded derivatives. Embedded derivatives are separated from the host contract and accounted for as a derivative.

The Group presents its financial statements and quarterly reporting in USD. The Parent Company has previously considered USD to be its functional currency. During fourth quarter 2007 the functional currency has been reviewed in depth and the Parent Company has decided that NOK is the correct functional currency.

The effect of the change of functional currency has been incorporated in fourth quarter 2007, and previous periods have been restated in order to reflect this change. The major consequence is that the embedded derivatives, previously measured at fair value through profit or loss, now is classified as equity.

Tandberg Data had USD 65.0 million in interest bearing debt at December 31, 2007, and net cash balance of USD 6.1 million of which USD 0.6 million is restricted cash.

Profit before tax
Loss before tax amounted to USD 28.8 million, compared with a profit of USD 2.3 million in the fourth quarter 2006. The increase in loss is primarily due to an impairment of goodwill established by the acquisition of assets and certain liabilities of Exabyte in November 2006.

Cash flow
The company’s total cash flow was negative by USD 1.0 million in the fourth quarter 2007, compared with a negative cash flow of USD 10.0 million in the corresponding quarter in 2006.

The cash flow from operating activities was negative with USD 1.0 million and the cash flow from investing activities was negative with USD 2.3 million in the quarter, due to investment in tools and equipment moving Exabyte’s production from Japan to China. Net cash flow from financing activities was positive with USD 2.3 million. A new debt facility of NOK 38 million was established at the end of the fourth quarter, of which NOK 20 million was paid before the year end and the remaining in January 2008. The cash balance at the end of the quarter was USD 6.1 million, compared with 7.4 million at the end of fourth quarter 2006.

Balance Sheet
Total assets are reduced with USD 30.0 million from the reported USD 123.8 million as per 31 December 2006 primarily due to impairment of goodwill and the sale of shares in Tandberg Storage. Inventory has increased with USD 7.3 million to USD 23.1 million and trade accounts receivable has been reduced with USD 8.3 million to USD 33.1 million.

Non-current liabilities has increased with USD 7.3 million primarily to a new financing of NOK 38 million.

Equity is reduced from 32.7 million as per 31. December 2006 to negative 3.4 million as per 31. December 2007. The loss of 36.1 million is primarily explained by the loss for 2007 of USD 44.5 million, materially influenced by impairments amounting to USD 19.2 million. In addition equity share of compound financial instruments and currency exchange rate differences on translating foreign operations partly offset the negative effect on equity.

Basis for going concern
Tandberg Data has currently a negative equity. The assumption for further going concern is based on the assumption of implementation of a cost reduction program with an annualised effect of USD 16 million, a new stock issue to be implemented in March 2008 with an expected net proceed of NOK 100 – 150 million, refinanced bond loans, as well as refinanced loan from other creditors.

Market and products

Regions and customers
Sales to Original Equipment Manufacturers (OEM’s), or companies that acquire Tandberg Data products to embed or sell under own brand, amounted to USD 23.4 million in the quarter, which is an increase of USD 9.3 million compared with the corresponding quarter last year, and an increase of USD 0.6 million from the previous quarter.

The OEM sales’ relative share of the total revenue of 48.9 per cent this quarter is higher than the 30.5 per cent share fourth quarter last year, and up from the 46.5 per cent share in the previous quarter.

The OEM sales in Americas increased by USD 9.7 million, or 103.2 per cent compared with corresponding quarter in 2006 due to the acquisition of the former Exabyte business that took place in November 2007. Compared with the previous quarter, the OEM sales in Americas are up by 7.3 per cent.

Sales through distributors amounted to USD 24.5 million the fourth quarter, which is a decrease of USD 7.7 million compared with the corresponding quarter in 2006. Compared with the third quarter this year, sales are down from USD 26.2 million.

Sales in the Americas decreased by USD 5.1 million from fourth quarter 2006. Compared with the third quarter, sales in the Americas are down with USD 3.4 million or 28.6 per cent, mainly due to a strategy change preventing quarter-end inventory build-up at discounted prices.

In Europe, Middle East and Africa (EMEA), revenues decreased with USD 2.1 million or 15.4 per cent compared with the fourth quarter last year, but increased with 16.2 per cent compared with the previous quarter. The reason for the decrease is lower sales to an OEM customer and the decision to stop sales of DLT tape drive products previously supplied by Quantum Corporation.

For the Asia Pacific (APAC) region, sales revenues are down with USD 0.2 million compared with the fourth quarter in 2006, but up with 4.9 per cent from the third quarter this year.

RDX® QuikStor (Removable Hard Disk Drives) was launched at the end of third quarter last year and the product has been well received in the sales channel and OEM customers. Compared with the previous quarter RDX sales is up 40 per cent.

Automation sales are down by 0.4 million compared with the fourth quarter. Compared to the previous quarter, sales are down 13.8 per cent, mainly due to reduced delivery of products to distributors to prevent quarter-end inventory build-up at discounted prices. However what issignificant is automation with LTO drives inside, is growing.

At USD 23.8 million, sales from tape drives are up from the USD 22.3 reported in the fourth quarter 2006. Compared to the previous quarter sales are down with USD 2.5 million.

Market update
The data storage market sector continues to be a dynamic growth sector. Critical data and regulations around retention of data fuel tremendous growth in this market worldwide.

As previously communicated, tape remains a core technology in the data protection strategies of many enterprises. Although the total tape drive market is not predicted to grow in market size, the sections of the market where Tandberg Data has its focus are expected to grow and Tandberg Data’s products are positioned to take advantage of this growth. The markets currently addressed by Tandberg Data are the tape drive, tape automation, tape media and removable hard disk drive markets.

Business enterprises are under increased pressure to reduce backup windows while accelerating access time to data. This development has paved the way for the trend towards increasing sales of disk based solutions as these solutions provide faster backups.

The trend towards increasing sales of disk based solutions was maintained during the fourth quarter. Data growth coupled with shrinking back-up window continued to be the main driver. Tandberg Data’s removable disk solutions – the RDX QuikStor® – continued to take volumes from mature technology in the low end, entry level segments, and segments which currently do not take back up due to high costs in backup solutions.

Tandberg Data Group introduced the StorageLibrary T40+, a scalable tape library allowing users to stack up to five T40+ libraries together to create one big tape library. Furthermore, Tandberg Data was one of the first vendors to supply the 300 GB RDX® QuikStor™ cartridge. Tandberg Data also introduced the availability of two new products for Mac OS X, the VXA-320 Firewire/USB Tape Drive, and the StorageLoader VXA-320.

Outlook
New Board of Directors, CEO and management team are implemented and fully effective for Q1 2008

Through the acquisition of Exabyte Tandberg Data have acquired a strong sales and marketing foothold in the ‘Americas’ both with ‘OEM’ and channel customers. A sales and marketing channel as strong as this can take many years to develop. Our relationships remain to be strong which is evident given the continued traction we are seeing with both RDX and LTO related products

Tandberg Data design and market products that are widely accepted by large ‘OEM’ and channel customers worldwide. Tandberg Data intend to enhance the current tape and disk offerings by adding service and software products gradually through 2008, continuing through 2009, 2010 and beyond. Customers in some circumstances want to have ‘solution’ offerings and by adding the right service and software we will achieve that. By focusing on service, we will be developing an opportunity to increase our value to our customers and open up the opportunity for renewable revenue streams into the future.

We anticipate that we will see significant growth on RDX from 2008 through 2012. From 2012 it is hard to predict the market. New OEM wins are expected on this technology in 2008. The channel growth on RDX continues at a significant pace.

Now that we have got the inventory at our customers in North America under control we expect to see a steady growth in our LTO automation sales. Although automation as a whole has declined slightly, Automation sales with LTO technology inside is growing very well. This trend should continue as a result of declining sales of the DLT technology.

As previously announced, in light of the serious financial situation the company is in, the new board and management have already started implementing a series of changes to turn Tandberg Data around. These changes include a restructuring of the cost structure including, personnel expense, operating expenses, restructuring of the capital structure of the company, refinancing of the debt as well as a deeper focus on the cash flow and liquidity situation.

The cost reduction program introduced by the new administration will see an annualized cost reduction of USD 16 million. The major part of the reductions will happen in Q1 2008 with the benefits realised in Q2. Further benefits of the cost reduction program will be seen gradually through the financial year 2008.

We expect to see a reduction of inventory by about USD 2 million from Q4 2007 to Q1 2008 as part of an overall focus to utilise our assets well and improving the company’s efficiency. We expect to see the inventory level to continue to reduce gradually through 2008 whilst still focusing on revenue development. We will achieve this through re focusing on process throughout the company going forward.

With the cost reduction program well under way, Tandberg Data is now set up very well to take advantage of the growth in stored data worldwide. The management team is largely new and all have excellent track records in the Data storage market. The products are very good and widely accepted, the costs are being reduced significantly to produce a positive EBIT relatively quickly, margins will gradually grow with a combination of selling the right ‘mix’ of products and as well as the introduction of new offerings such as service and software during 2008 and finally our sales channels and customers are more comprehensive now than in the past.

A new 2008 budget was approved by the board in January and the key items were: Revenues and gross margin will stay relatively flat to 2007, a key goal the company believes is achievable even while going through the above mentioned changes. Beyond 2008, both revenues and gross margin are expected to improve as the company has completed the restructuring phase and can re-focus more on top- and bottom-line growth. Another key goal of 2008 is to produce a turn-around in EBIT to a point where the company will show positive EBIT and then growing into 2009 and 2010. The last key objective for 2008 is to improve the company’s financing by refinancing the current debt and a stock issue and produce a more efficient and effective capital structure. This will position the company to reach its objectives beyond 2008.

This report contains forward looking statements. These statements are based on various assumptions, many of which are based, in turn, upon further assumptions, including Tandberg Data management’s examinations of historical operating trends. Although Tandberg Data believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, Tandberg Data cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.

CONTACT PERSONS:
Pat Clarke
CEO
Tel: +44 1295 724 142

Erik Hansen
CFO
Tel.: +47 9765 6140

Download the complete results for 4th Quarter of 2007 

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