Q: Last quarter Quantum lost $38m on $195m in revenue. How are you going to turn things around?
The biggest part of that was this deferred tax-asset adjustment (of about $21m). That really isn't a current-quarter operating result. It's a one-time hit.
Last year, I was feeling very good about our progress. We had good growth. And in this environment, media wasn't really growing. It was mostly flat, maybe down a little bit. But the rest of the business was growing nicely. We had continuous quarter-to-quarter growth, improved gross margins, brought expenses down and began to make money. And then the big media impact hit in Q1 and Q2 (fiscal first and second quarters).
Media is a pretty huge chunk of your business. Are you trying to get away from that somehow?
It's still a good business model. We have been too dependent on that, as we've been building these other businesses… We have to make improvements to our media business. But probably more important is the need to make sure that we move through the progress we need to make in the other businesses more quickly. That's what we're doing.
What's behind the pricing issue? Are tape makers producing like crazy?
Yeah. First of all, it hasn't just been our format. Every format has been under pressure. It is purely the result of simple supply and demand. And the Japanese manufacturers just love to keep their factories going. They don't respond very quickly, because they're very motivated to grow volume, and lower cost, and improve quality. That's their model. And that's what happened. It'll adjust. It'll stabilise. In fact, we think it's stabilising now. But it was a pretty significant adjustment.
One thing in the earnings report -- it did say you're evaluating what sorts of structural changes to make. Can you help us understand your thinking?
If you look at our history as a company, one of the biggest challenges is that we were a large homogeneous business of hard drives. We divested that. We acquired pieces, etc.... All of that legacy and history has led us to a fairly cumbersome structure. We have the tape drive business. We have what I would call the systems business. And we have a lot of duplicate capability within those businesses.
I recognised that very early on. But (earlier on), we were executing well, we were continuously growing. I wanted to stay the course, and we were still bringing expenses down nicely.
Now we have completed our product executions -- at least, this season of them -- and we've found ourselves under this additional pressure. It's incumbent upon me to say, "what's a more efficient way to run the business?" I do believe that we're at a point in the industry where just hard-core execution is where it's at. There's really very little margin for someone who isn't doing that, because it's an unforgiving environment that we're in today.
