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Sphere 3D Buys RDX Storage Business From Imation for $6 Million

This business, never exploding, now monopol of one company

Highlights:

  • Transaction will be accretive in this quarter for both revenue and gross margin;
  • Market will benefit from centralized introduction of new features and capacity upgrades;
  • Expands RDX market share in North America and Japan, to augment the existing strength in Europe;
  • Provides greater control over the backup appliance components that form a key part of Sphere 3D’s strategy to deliver comprehensive virtualization, storage and data management for on premise, cloud and hybrid infrastructures.

Sphere 3D Corp. announced that its wholly-owned subsidiary, Overland Storage, Inc., acquired the RDX removable disk product lines and existing inventory assets from Imation Corp., pursuant to an Asset Purchase Agreement, dated as of August 10, 2015, by and among Sphere 3D, Overland Storage and Imation.

The Imation RDX product lines generated approximately $14.5 million of revenue for Imation in the trailing twelve months as of June 30, 2015.

The completion of our acquisition of the RDX product lines from Imation will accelerate our efforts to aggressively pursue the purpose-built backup appliance market which is a valuable differentiator in our reference architecture for our hyper converged infrastructure deployments,” said Eric Kelly, CEO, Sphere3D. “With this transaction now complete, Sphere 3D can expand the current strong presence of our Tandberg Data business in Europe, while increasing sales in key geographies such as North America and Japan, as well as simultaneously strengthening our Global Channel Partner Network for backup appliance offerings.”

According to IDC Worldwide Quarterly Purpose-Built Backup Appliance Tracker, the worldwide PBBA market got off to a strong start in 2015 with solid year-over-year revenue growth. Factory revenues grew 6.9% year-over-year totaling $719.3 million and capacity shipped reached 647PBs, an increase of 32.3% year-over-year in the first quarter of 2015.

Sphere 3D’s award winning and patented RDX removable disk technology, marketed and sold under our Tandberg Data brand, is the industry standard in enterprise-grade removable disk storage for backup, data protection and archiving, and is characterized by its very rugged design that allows the disks to be handled and transported while safely retaining data,” said Nilesh Patel, VP of product management and marketing, Sphere 3D. “RDX-powered purpose-built backup appliances, like our new RDX QuikStation, are the ideal solution for Small-to-Medium sized businesses in highly regulated industries such as healthcare and financial services, where data must be secured, protected, archived and recoverable per government regulations. This acquisition also now makes available to our global partners our groundbreaking RDX+ software technology which is designed to increase storage capacities by 50% and more, providing all QuickStation and QuickStor appliance customers with future expansion to larger than 2TB capacity media.”

As part of the agreement and to ensure a seamless transition for customers, Imation has agreed to provide certain customer support services through October 31, 2015.

Transaction Highlights
100% stock transaction valued at approximately $4.9 million plus the net value of existing inventory of approximately $1.4 million, based on the closing price of Sphere 3D common shares as of August 6, 2015.

Comments

RDX is an old history. The based idea came from ProStor Systems, born in 2004 in Boulder, CO and founded by Steve Georgis who formerly co-founded dead tape company Exabyte. The start-up got 26.4 million in financial funding from investors including Peter Behrendt, CEO and chairman of Exabyte.

The RDX technology is based on a docking station plugged with a removable 2.5-inch HDD supposed to sustain a one meter drop onto a concrete floor with an archival lifetime up to 30 years.

From the beginning the capacity of the HDD followed the trend of the 2.5-inch HDD technology: 160, 320, 500, 1,000, 1,500, 2,000GB. Later SSDs of 128, 256 and 512GB were added to be included into the docking station. The product was promoted to replace tapes and to build archiving systems.

Quantum signed up with ProStor to OEM the RDX removable disk drive and then decided to drop this activity.

An RDX Storage Alliance was formed with participants and OEMs of the technology including BDT (libraries), Dell, Fujitsu, Hitachi, HP, IBM, Imation, Maxell, NEC, ProStor Systems and Tandberg Data.

Tandberg Data acquires ProStor RDX business in May 2011 and the archiving systems were sold to Imation in 2011. Then Overland Storage bought Tandberg Data in January 2014 and both of them were finally acquired more recently by Sphere 3D.

The last known figures published on RDX:

  • Over 1EB of storage capacity shipped on more than 700,000 RDX systems at the end of 2014.
  • In the press release above, the RDX product lines generated $14.5 million of revenue for Imation in the trailing twelve months as of June 30, 2015.

On April 9, 2015, Imation filed a complaint in Minnesota state court alleging claims for declaratory relief, breach of contract, and tortious interference with contract against Tandberg Data, Tandberg Data Holdings S.a.r.L., Overland Storage, and Sphere 3D related to Imation's RDX business. In the lawsuit, Imation accuses defendants of anticipatory breach of an RDX-related license agreement that Imation entered into with ProStor in 2006. This lawsuit was dismissed with prejudice on August 11, 2015, at the time of the acquisition of Imation RDX by Sphere 3D. The asset purchase agreement also terminated an existing license agreement and settled all disputes between the parties.

We have never understood the interest of RDX. It's faster than tape for backup but can be easily replaced by much less expansive conventional external HDDs not removable, but easily transportable. This technology never explodes and will progressively disappear. Even LTO is more successful than RDX.

There was many other attempts in the past to design and sell dock with removable HDDs. Companies in this field include ACT, CMS, Computer Connections, Flotec Engineering, IBM, IEF, Kalok, Jod, Logisys, MDB Systems, Mountain Gate Data Systems, Prostor (another one in San Francisco, CA) and Quantum (with another technology, Passport). Other ones try another similar approach: drives with removable magnetic disks. They were offered by Avatar, Castlewood, Iomega (Bernoulli, Jaz, TEV) and SyQuest. At the end all these technologies died as well as all these companies but IBM and Quantum no more involved in removable disks or disk drives.  

Fothermore, Sphere 3D has now the monopole of RDX which means that it's not anymore considered as a standard that has to be supported by more than one firm.

Our opinion is that Sphere 3D acquires RDX
from troubled Imation for a small amount:

  • to  benefit of the continuing services on the installed base
  • to sell cartridges of larger capacities to current users
  • to get rid of a lawsuit with Imation

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