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Press Release

Tandberg Data announces Results for 2nd Quarter of 2007

16 August 2007


  • Revenue for the second quarter was USD 45.2 million, a revenue growth of 47.6 per cent compared with second quarter 2006.

  • The gross margin was 29.2 per cent, in line with the 29.5 per cent in the first quarter, and within target of 28-30 per cent.

  • Operating loss before depreciation (EBITDA) of USD 0.5 million.

  • Financial items positively affected by non cash items of USD 4.1 million.

  • Sale of shares in Tandberg Storage with a profit of USD 4.8 million and net cash proceeds of USD 11.3 million.

Operational Review

Sales through distributors
Sales through distributors amounted to USD 28.3 million in second quarter, which is an increase of USD 9.5 million compared with corresponding quarter in 2006, but slightly down from the USD 34.1 million reported in the first quarter of the year. In Europe, Middle East and Africa (EMEA), revenues decreased with USD 1.1 million or 10.3 per cent compared to the corresponding quarter last year and 14.3 per cent to the first quarter this year. The main reason is that a DLT contract was cancelled during the quarter. For the Asia Pacific (APAC) region, sales revenues are stable compared with the second quarter in 2006, but down 8.0 per cent from the first quarter. Sales in the Americas increased by USD 10.8 million from second quarter 2006, primarily explained by the acquisition of the former Exabyte business. Compared to the first quarter, sales in the Americas are down with USD 3.7 million or 21.0 per cent, mainly due to a strategy change preventing quarter-end inventory build up at discounted prices at distributors in previous quarters.

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 16.9 million in the quarter, which is an increase of USD 5.1 million compared with the corresponding quarter last year, and an increase of USD 0.7 million from first quarter. The OEM sales' relative share of the total revenue of 37.4 per cent this quarter is slightly lower than the 38.6 per cent share second quarter last year, but up from the 32.2 per cent share in the previous quarter. The OEM sales in Americas increased by USD 4.9 million, or 63.6 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 21.1 per cent. 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 previous quarter RDX sales is up 17.7 per cent. Automation sales are up by 100.0 per cent compared with the second quarter last year primarily due to the acquisition of the former Exabyte business. Compared to the previous quarter, sales are slightly down. At USD 19.3 million, sales from tape drives are slightly down from the USD 19.8 and USD 20.7 million reported in the second quarter 2006 and the first quarter 2007 respectively. The acquisition of Exabyte represented an increase in the tape drives sales, since VXA drives were brought into the portfolio. This effect is however more than offset by the effect from decreased sales of SLR and DLT drives which are at the end of their life cycle. During the quarter, two new OEM contracts were entered into. One with a major Japanese OEM server manufacturer for supply of RDX® QuikStor and the other is an extention of the contract with Apple. In the second quarter several new products were launched comprising Magnum 224 Tape Library with fourth-generation LTO®-4 tape drive technology, StorageLibrary T40 with LTO-4 tape drive technology, LTO- 3 Half-Height (LTO-3 HH) and a new LTO-4 tape drive.

Financial Review

Revenues and operating profit
Tandberg Data generated sales revenues of USD 45.2 million in the second quarter of 2007, an increase of 47.7 per cent compared with the USD 30.6 reported in the corresponding quarter in 2006, mainly due to the acquisition of Exabyte. Compared with the previous quarter, revenues are down 10.1 per cent. The operating loss before depreciation was USD 0.5 million in the quarter, compared with a loss of USD 6.0 million in the second quarter 2006 and a profit of USD 1.2 million first quarter this year.

Gross margin
The gross margin is up from 21.3 per cent in second quarter 2006 to 29.2 per cent this quarter, mainly due to the Exabyte business contributing in second quarter 2007, but not in second quarter 2006. The margin is in line with the 29.5 per cent reported in previous quarter. During the second quarter marketing distributing funds of USD 1.1 million, previously reported as revenue reduction, has been classified as operating costs.

Operating costs
Operating costs were USD 13.7 million in the second quarter 2007, compared with USD 7.5 million before restructuring costs related to the agreed acquisition of Exabyte of USD 5 million in the second quarter 2006. Marketing distribution funds of USD 1.1 million is included in operating costs, but has previously been presented as a revenue reduction. Still, the costs are in line with the costs that were reported for the previous quarter.

Ordinary depreciation and amortisation of acquired technology, fixed assets and product development costs is included with USD 1.9 million in the second quarter 2007, compared with USD 0.8 million in the second quarter 2006 and 2.3 million in the previous quarter. Ordinary depreciation has increased this quarter compared to the second quarter 2006 due to the purchase of Exabyte assets. During the second quarter the initial accounting of the acquisition of Exabyte has been completed with the effect that the fair value at transaction date of Technology has been reduced with USD 1.8 million and qoodwill increased similarly. The effect of previously too high depreciation on Technology is included with USD 0.3 million. Licenses, technology and development have been capitalised by USD 0.5 million during the quarter.

Net financial items
Financial items were positive by USD 7.7 million in the second quarter 2007. Interest expenses related to the company's interest bearing debt is included with USD 1.4 million. Profit from sale of shares in Tandberg Storage is included with USD 4.8 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. Once recognised, embedded derivatives are measured at fair value through profit or loss. The estimated effect of change in fair value of the derivatives has a positive effect of approximately USD 4.7 million on other financial items. In addition other financial items include a negative effect of USD 0.9 million due to currency fluctuations. Tandberg Data had USD 57.0 million in interest bearing debt at June 30, 2007, and net cash balance of USD 10.9 million of which USD 1.2 million is restricted cash.

Profit before tax
Profit before tax amounted to USD 5.3 million, compared with a loss of USD 8.7 million in the second quarter 2006.

Cash flow
The company's total cash flow was positive by USD 5.7 million in second quarter 2007, compared with a positive cash flow of USD 16.0 million in the corresponding quarter in 2006. The cash flow from operating activities was negative with USD 4.6 million as a result of an increased working capital requirement. The cash flow from investing activities was negative with USD 0.6 million in the quarter, due to investment in research and development. Investment in other assets is offset by sale of assets. Net cash flow from financing activities was positive with USD 10.9 million. This relates to proceeds from the sale of shares in Tandberg Storage, USD 11.3 million and down payment of debt in Japan of USD 0.4 million. The cash balance at the end of the quarter was USD 10.9 million, compared with 20.6 million at the end of second quarter 2006.

Other issues
In May Tandberg Data conducted a secondary placing of 21.325.058 shares in Tandberg Storage at a price at NOK 3.30 per share. After the placement Tandberg Data holds no shares in Tandberg Storage. In May a new management team of Tandberg Data was established. The management team consists of CEO, CFO, CTO, COO and Vice President worldwide sales, marketing and customer service. The COO position is from August held by Kevin Devlin. At the General Assembly of Tandberg Data on 7 June, the Board of Directors were granted the authority to issue shares and purchase shares in respect of share options to management and key personnel pursuant to a share option programme with a maximum number of shares of 3.925.000 of which a total of 1.675.000 share options have already been awarded in December 2006.

Market update
Tape remains a core technology in the data protection strategies of many enterprises. Tape drives are not growing in market size, but they are part of the predicted growth of low end and mid range tape automation. 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 second 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. During the second quarter Tandberg Data announced the availability of several new products and entered into new agreements:

In May Tandberg Data announced the general availability of their fourth generation LTO drive, offering new levels of performance, capacity and functionality. The Tandberg LTO-4 drive is for use in higher end server environments both as a standalone drive and in automation. In June the LTO-4 drive was announced available in both StorageLibrary T40 and in the Magnum 224 Tape Library.

In June Tandberg also entered into an agreement with Apple adding four new products for Mac OS X. The new products include backup and recovery software, providing Apple customers a variety of feature-rich data protection solutions at industry-leading prices. In addition StorageLoader LTO-3 for the Mac OS X platform was made available through the Apple Store.

In addition, Tandberg Data was successfully qualified by a major tier one OEM in mid June, and has begun volume deliveries of the company's new half height LTO3 tape drive. The initial term of the agreement is three years, with yearly extensions thereafter. Tandberg Data estimates the value of the agreement to be USD 45-50 million in revenue over the first three years. The tape drive market is positive for Tandberg Data in the next two quarters and the company will aim to have some growth in the coming quarters. The market share will remain fairly stable in Q3 and Q4. Tandberg Data expects to take market share in the automation market and will aim to grow RDX and the disk systems sold in EMEA and Asia. Overall, Tandberg Data expects the RDX sales to be relatively flat in Q3 compared to Q2, but the company expects some seasonal growth in Q4.

Overall revenues in Tandberg Data for 2007 will be lower than previously expected. This is mainly due to weaker sales than anticipated in the US channel and slower adoption of new products.

Taking into account a normally stronger fourth quarter, Tandberg Data expects revenue for the last half of 2007 higher than first half.

The new revenue expectation is disappointing to the Board of Directors. Tandberg Data will intensify the work to make the business more efficient.and continue to pursue additional revenue opportunities with existing and new customers on current and future products that could potentially increase revenue above the level indicated above.

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's 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.

Per Kristian Jacobsen
Tel: + 47 90 18 77 60

Per Øseth
Tel.: + 47 22 18 94 95

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