Overland narrows loss and identifies more cuts

Overland has set out plans for further savings

Overland Storage has reported a narrower loss in its second quarter results, but revealed plans for more cut backs and the consolidation of facilities in a bid to save more cash.

The storage giant posted $28.9m (£19.7m) in turnover for the three months to 31 December, a decrease from the $34.1m achieved for the same quarter last year.

It also revealed net losses of $5.2m (£3.5m) for its second quarter compared with $6.5m year on year.

The vendor said the 15.2 per cent dip in turnover was primarily due to lower sales to Overland’s biggest OEM customer. Total OEM turnover was down 37.1 per cent compared to Q208.

While sales in the Americas region remained flat, EMEA experienced a 15.1 per cent decline and APAC sales fell 40.2 per cent.

Last month Overland announced a business restructuring that included a 17 per cent reduction in its worldwide workforce and a 10 per cent pay cut for all employees.

Eric Kelly, chief executive of Overland Storage joined the board in November 2007 and began working with management to devise a new financial plan.

In order to become cash flow positive on quarterly turnover of less than $30m, Kelly said: “We developed our new financial model to significantly reduce the breakeven point, and that has become our near-term goal. In order to achieve this goal, we attacked product costs and operating expenses, a process that entailed highly focused discussions with our suppliers and employees.

“We expect the pay-cut and related changes to generate $2.9m in annual savings. Aggregated, we anticipate these actions should amount to annual savings of $14.3m. Though these cuts substantially change our business model, they are intended to assure the viability of Overland and fuel the growth of our business.”

Kelly explained that Overland has identified approximately $2.5m of product-related cost reductions, aimed at improving the vendor’s gross profit margins.

“We are also consolidating our facilities and reducing other spending with the goal of cutting an additional $3.4m of cost and expenses,” he said.

Overland anticipates that these reductions will amount to approximately $5.5m in annual savings.

Vern LoForti, president of Overland, said: “The challenges we faced in the December quarter were significant. We were affected by a combination of the difficult worldwide economic conditions and concerns in the first two months of the quarter about our ability to obtain financing, both of which hampered sales.

“In late November, we secured a $9m accounts receivable financing line that alleviated some concerns. But, in order to ensure a return to profitability, we acknowledged the need to modify our business model.”