Quantum: hot air balloon or just a basket case?

Another Take on Quantum's Progress

If you’re not an accountant or financial analyst, it can be easy to overlook a key element of Quantum’s Fiscal Year 2009 (FY09) results and, therefore, evidence of the significant progress Quantum has made since acquiring ADIC in August 2006.

Focusing exclusively on the GAAP results in Chris Mellor’s article, the “sizeable loss” he references for FY09 was largely driven by a one-time, non-cash charge for goodwill impairment in the December quarter – specifically, $339 million of the $356 million loss for the year. Like many other companies this past year whose market value declined significantly in the wake of the global economic crisis, Quantum took this charge because of accounting rules that essentially require companies to write down the value of goodwill on their balance sheets when such a decline occurs. This is quite different from a company losing $339 million in hard dollars because the cost of operating exceeds what it earns by that margin. In fact, Quantum’s stock price closed nearly 38% higher the day after the announcement of its December quarter results, suggesting the goodwill impairment was not a major concern of investors.

Without this goodwill impairment charge, Quantum’s net loss for FY09 would have been $17 million, a big improvement from the $41 million net loss in the year before the ADIC acquisition (FY06). More noteworthy, on a non-GAAP basis generally used by financial analysts – which excludes goodwill impairment, amortization of intangibles and stock-based compensation charges (all of which are non-cash) as well as other one-time, special charges – Quantum actually increased its net profit from $19 million in FY06 to $41 million in FY09.

In this light, the progress Quantum has made in transforming from a tape company to a higher value storage systems company integrating disk, tape and software assets can also be seen in the past year’s financial results. While this transformation is still not complete, the company is far better off than some might conclude from reading this article.