Quantum Corporation's Fiscal Second Quarter Results Begin to Show Benefits of ADIC Acquisition

Revenue Increases 23 Percent Year-over-Year Due Largely to ADIC Contribution



SAN JOSE, Calif., Nov. 8  /PRNewswire-FirstCall/ -- Quantum Corp. (NYSE:DSS), the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal second quarter (FQ2'07), ended Sept. 30, 2006, was $250 million. This was a 23 percent increase over the same quarter last year (FQ2'06), largely due to the inclusion of sales resulting from the acquisition of Advanced Digital Information Corp. (ADIC), which closed on Aug. 22. Quantum reported a GAAP net loss of $30.7 million, or 16 cents per diluted share, compared to a 7-cent loss per diluted share in the comparable quarter last year. The $30.7 million net loss included a number of major items totaling $35.2 million: $14.7 million of in-process research and development expenses resulting from the ADIC acquisition, $9.6 million in amortization of acquisition-related intangibles, $6.7 million in restructuring charges, $2.2 million in stock-based compensation charges and $2 million related to a one-time, purchase accounting adjustment in inventory.

"With just five-and-a-half weeks as a combined company in the September quarter, we are already beginning to see the benefits of the ADIC acquisition," said Rick Belluzzo, chairman and CEO of Quantum. "We increased revenues without the 'leakage' that often follows an acquisition and moved quickly to begin realizing the cost synergies we'd identified. We feel very good about the progress we're making on integration, the response we've received from customers and partners and our ability to drive toward our target business model."

Quantum's gross margin rate for the September quarter was 28 percent, compared to 26 percent in FQ2'06. Operating expenses were $92.3 million, up from $67.3 million in the same quarter last year due mainly to the ADIC acquisition. Quantum began executing on its plan to achieve $20 million in quarterly cost synergies, completing the majority of its headcount reduction actions and non-headcount decisions. Because the acquisition was completed with less than six weeks remaining in the September quarter, the synergy savings in FQ2'07 was relatively small. However, the company said it expects to achieve roughly half of its $20 million quarterly synergy target in the current quarter (FQ3'07) and three-fourths of the target in the March quarter.

Quantum's product revenue, which includes sales of the company's hardware and software products and services, totaled $222.5 million in the September quarter. This represented an increase of $51.0 million over FQ2'06, again largely due to the addition of ADIC sales after Aug. 22. To provide greater insight into its results, Quantum broke down product revenue into three categories: "systems," "devices and non-royalty media" and "services and other."

Systems revenue, which includes sales of tape automation, disk-based backup systems and software, totaled $102.9 million in FQ2'07, compared to $48.9 million in the same quarter last year. Most of the increase resulted from the ADIC acquisition, with a strong contribution from sales of the i500 midrange tape library, one of the flagship products in Quantum's newly expanded portfolio. While still a relatively small percentage of Quantum's overall business, sales of ADIC software continued to achieve record levels, expanding a customer base that includes television networks, movie studios, law enforcement organizations and a number of U.S. and foreign governmental agencies. Beyond the ADIC contribution to systems revenue in the September quarter, Quantum also benefited from sales of several new products it introduced over the previous year, including the DX3000 and DX5000 disk-based backup appliances, PX502 entry-level tape library and SuperLoader(TM) 3 tape autoloader.

Revenue from devices (tape drives and removable hard drives) and non-royalty media sales totaled $92.3 million in FQ2'07, down $9.8 million from FQ'06. Despite year-over-year increases in sales of LTO-2 HH and LTO-3 tape drives and the ramping of new DLT-S4 and DLT-V4 drives over the last few quarters, this was insufficient to offset the retirement of older device products.

Revenue in the "services and other" category -- which includes hardware service contracts as well as repair, installation and professional services -- was $27.3 million in the September quarter. This represented an increase of $6.8 million from FQ2'06, reflecting the contribution of ADIC.

Revenue from tape media royalties totaled $27.8 million in FQ2'07, down about $4.2 million from FQ2'06. This reflected the impact of the net decline in the installed base of DLT(R) tape drives over the past year.

Commenting on the remaining two quarters of its fiscal year, Quantum said it expected revenues of approximately $300 million per quarter, gross margin rates in the range of 29 percent to 30 percent, and operating expenses of approximately $90 million and $81 million in the December and March quarters, respectively. The gross margin rate includes the impact of approximately $8 million in amortization of acquisition-related intangibles and stock-based compensation charges, while the operating expense figures include approximately $8 million to $9 million related to these two items.

Change in Stock Ticker Symbol

In addition to reporting its September quarter results, Quantum also announced today that it is changing its stock ticker symbol from DSS to QTM to align more closely with the company's name now that the ADIC acquisition has been completed. Quantum stock will continue to trade on the New York Stock Exchange, and the ticker symbol change will take effect at the start of trading on Wednesday, Nov. 15, 2006.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Nov. 8, 2006, at 2:00 p.m. PST, to discuss its fiscal second quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: [phone] (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Nov. 8, 2006, at 2 p.m. PST. Site for the webcast and related information: http://investors.quantum.com/.

About Quantum

Quantum Corp. is the leading global storage company specializing in backup, recovery and archive. Combining focused expertise, customer-driven innovation, and platform independence, Quantum provides a comprehensive, integrated range of disk, tape, and software solutions supported by a world- class sales and service organization. As a long-standing and trusted partner, the company works closely with a broad network of resellers, OEMs and other suppliers to meet customers' evolving data protection needs. Quantum Corp., 1650 Technology Drive, Suite 700, San Jose, CA 95110, [phone], http://www.quantum.com/.

NOTE:  Quantum, the Quantum logo, DLT and DLTtape are trademarks of Quantum Corporation registered in the United States and other countries. SuperLoader and DX are trademarks of Quantum Corporation. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement under the U.S. Private Securities Litigation Reform Act of 1995: This press release contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, without limitation, statements relating to: (1) our ability to drive toward our business model; (2) our expectations regarding FQ3'07 and FQ4'07 revenues, gross margins, operating expenses, amortization of intangibles and stock based compensation charges; and (3) our expectation regarding synergies and cost savings resulting from the ADIC acquisition and the timing of the realization of such cost savings. More detailed information about these risk factors, and additional risk factors, are set forth in Quantum's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors," on pages 32 to 42 in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2006 and pages 14 to 25 in Quantum's Annual Report on Form 10-K for fiscal year 2006, filed with the Securities and Exchange Commission on June 12, 2006. In particular, you should review the risk factors on pages 32 through 35 of our Form 10-Q under the headings "A large percentage of our sales come from a few customers, and these customers have no minimum or long-term purchase commitments. The loss of, or a significant reduction in demand from, one or more key customers could materially and adversely affect our business, financial condition, and operating results", "From time to time we make acquisitions, such as the contemplated acquisition of ADIC. The failure to successfully integrate recent or future acquisitions could harm our business, financial condition, and operating results", "Our operating results depend on new product introductions, which may not be successful, in which case our business, financial condition, and operating results may be materially and adversely affected", "Competition has increased, and may increasingly intensify, in the tape drive and tape automation markets as a result of competitors introducing products based on new technology standards, which could materially and adversely affect our business, financial condition, and results of operations", "We derive almost all of our revenue from products incorporating tape technology. If competition from alternative storage technologies continues or increases, our business, financial condition, and operating results would be materially and adversely harmed", and "Our tape media business generates a relatively high gross margin rate, which significantly impacts the total company gross margin rate. If we were to experience a significant decline in the tape media or tape royalty gross margin rate, our business, financial condition, and operating results would be materially and adversely affected." Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

                           QUANTUM CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per-share amounts)


                                     Three Months Ended   Six Months Ended
                                    Sept. 30, Sept. 26,  Sept. 30, Sept. 26,
                                       2006      2005      2006       2005

   Product revenue                   $222,537  $171,530  $381,581  $347,624
   Royalty revenue                     27,833    32,077    55,384    62,620
    Total revenue                     250,370   203,607   436,965   410,244
   Cost of revenue                    179,757   150,948   314,327   300,143
    Gross margin                       70,613    52,659   122,638   110,101

   Operating expenses:
    Research and development           27,864    27,488    51,947    56,670
    Sales and marketing                30,577    21,168    51,537    42,976
    General and administrative         12,487     9,039    22,748    19,828
    Restructuring charges               6,660     9,585     6,743     9,507
    In-process research and
     development                       14,700        --    14,700        --
                                       92,288    67,280   147,675   128,981
   Loss from operations               (21,675)  (14,621)  (25,037)  (18,880)
   Interest income and other, net       2,067     3,866     4,030     6,040
   Interest expense                    (8,546)   (2,582)  (10,708)   (5,373)
   Loss before income taxes           (28,154)  (13,337)  (31,715)  (18,213)
   Income tax provision                 2,522       451     2,537     1,052
    Net loss                         $(30,676) $(13,788) $(34,252) $(19,265)

   Net loss per share
    Basic                              $(0.16)   $(0.07)   $(0.18)   $(0.11)
    Diluted                            $(0.16)   $(0.07)   $(0.18)   $(0.11)
   Weighted average common and
    common equivalent shares
    Basic                             190,158   183,905   189,178   183,387
    Diluted                           190,158   183,905   189,178   183,387



   Included in the above Statements
    of Operations:

   Inventory valuation adjustment
    to fair value                      $1,960       $--    $1,960       $--

   Amortization of intangibles:
    Cost of revenue                     5,586     4,059     9,717     8,042
    Research and development              344        96       539       191
    Sales and marketing                 3,625     1,074     4,690     2,133
    General and administrative             18       147       164       293
                                        9,573     5,376    15,110    10,659

   Share-based compensation:
    Cost of revenue                       270        --       521        --
    Research and development              563        --     1,040        --
    Sales and marketing                   501        --       841        --
    General and administrative            895        --     1,605        --
                                        2,229        --     4,007        --


                           QUANTUM CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In thousands)

                                                September 30,      March 31,
                                                    2006              2006
  Assets
   Current assets:
    Cash and cash equivalents                      $128,987         $123,298
    Short-term investments                           21,901           99,975
    Accounts receivable, net of allowance
     for doubtful accounts of $8,961 and
     $7,843, respectively                           208,039          114,020
    Inventories                                     117,476           88,963
    Deferred income taxes                            27,620            7,422
    Other current assets                             35,578           30,869
     Total current assets                           539,601          464,547

   Long-term assets:
    Property and equipment, net                      67,910           38,748
    Service parts for maintenance, net               82,051           57,316
    Purchased technology, net                       123,398           41,237
    Other intangible assets, net                    101,662            8,572
    Goodwill                                        385,415           47,178
    Other assets                                     15,947            5,746
     Total long-term assets                         776,383          198,797

                                                 $1,315,984         $663,344

  Liabilities and Stockholders' Equity
   Current liabilities:
    Accounts payable                               $101,374          $67,306
    Accrued warranty                                 35,341           32,422
    Current deferred revenue                         59,416           22,107
    Short-term debt                                  25,000               --
    Accrued restructuring                            20,171           13,019
    Other accrued liabilities                       125,168           80,355
     Total current liabilities                      366,470          215,209

    Deferred income taxes                            27,223            6,995
    Convertible subordinated debt                   160,000          160,000
    Long-term debt                                  471,500               --
    Deferred revenue, long-term                      19,212               --
    Other long-term liabilities                          53               69

    Stockholders' equity                            271,526          281,071

                                                 $1,315,984         $663,344


                           QUANTUM CORPORATION
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)

                                                      Six Months Ended
                                                September 30,  September 26,
                                                  2006               2005
  Cash flows from operating activities:
   Net loss                                     $(34,252)          $(19,265)
   Adjustments to reconcile net loss to
    net cash provided by (used in)
    operating activities:
    Depreciation & amortization                   31,182             22,346
    In-process research and development           14,700                 --
    Gain on Ireland facility closure                (476)                --
    Deferred income taxes                            (36)                22
    Share-based compensation                       4,007                424
    Changes in assets and liabilities:
     Accounts receivable                         (10,937)             6,888
     Inventories                                     107             (2,037)
     Service parts for maintenance               (11,848)             2,950
     Accounts payable                             (2,297)           (14,430)
     Income taxes payable                          1,056               (769)
     Accrued warranty                             (4,026)            (2,646)
     Deferred revenue                              1,801               (463)
     Accrued restructuring                        (8,348)             3,831
     Other assets and liabilities                  4,222              9,791
  Net cash provided by (used in)
   operating activities                          (15,145)             6,642

  Cash flows from investing activities:
   Purchases of short-term investments          (464,758)        (1,036,100)
   Proceeds from sale of short-term
    investments                                  544,733            933,400
   Purchases of property and equipment            (9,651)           (11,428)
   Proceeds from sale of Ireland facility          6,000                 --
   Payments made in connection with
    business acquisitions, net of cash
    acquired                                    (545,385)           (20,228)
  Net cash used in investing activities         (469,061)          (134,356)

  Cash flows from financing activities:
   Borrowings of long-term debt, net             486,808                 --
   Proceeds from issuance of common
    stock, net                                     3,087              3,383
  Net cash provided by financing
   activities                                    489,895              3,383

  Net increase (decrease) in cash and
   cash equivalents                                5,689           (124,331)
  Cash and cash equivalents at
   beginning of period                           123,298            225,136
  Cash and cash equivalents at end of
   period                                       $128,987           $100,805


DATASOURCE: Quantum Corp.



CONTACT:  Brad Cohen, Public Relations, [phone], or

, or Mary Springer, Investor Relations, [phone],

or , both of Quantum Corp.



Web site:  http://www.quantum.com/ 

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