- Bright Future for LTO Tape Tech, QBAK a Sector Pioneer
- N2Power Upside Bullish Amid Burgeoning Gaming Market
- 12 Months of Positive Cash Flow, Solid Long-Term Fundamentals
Qualstar is one of the oldest names in data storage, with a track record stretching back to the company’s founding in 1984 as one of the first tape drive developers for PC and workstations. Having developed Linear Tape-Open (LTO) technology alongside industry giants HP (NYSE: HPQ) and IBM (NYSE: IBM) in 1998, QBAK is a storied outfit that famously helped offer a clear and viable choice in earlier days of the computing revolution when there was a great deal of confusion due to an increasingly complex tape storage market. And the company is now also known for their N2Power subsidiary’s superbly designed, highly efficient, power-dense, and ultra-small power supply units (PSUs), which are utilized in a wide variety of equipment across numerous industries.
LTO Tape, a Potential Answer to Tightening Cloud Storage Margins
Now, investors may not be aware of this, what with all the retail consumer-directed ballyhoo over the latest solid state drives, but seemingly ancient tape drive technology is actually pretty compelling. Particularly when it comes to handling archival data and backups, where the latest generation of LTO-7 drives have proven themselves in independent testing to be excellent solutions. SSG-NOW ran some tests in March on Ultrium cartridge (LTO tape specification optimized for capacity and performance) based LTO-7 tapes, finding them not only ready for use in a production environment, but easy to use thanks to the Linear Tape File System (LTFS) making them appear as just another mounted drive. Generation 8 of LTO Ultrium is slated to more than double storage space to 32 terabytes, with more than a 57 percent increase in speed, up to 1,180 megabytes per second.
Of the big three industrial-scale cloud storage players, Google (NASDAQ: GOOGL; GOOG) is the only one to really talk publicly about using tape in its storage architecture. Microsoft (NASDAQ: MSFT) often touts the tech, but is very hush-hush about its Azure platform build. And Amazon (NASDAQ: AMZN) is apparently still living in the 90’s, when tape first fell out of favor, largely due to the emergence of cheaper and bigger disk drives, as well as problems associated with the terrible backup software they had back then.
The truth is that LTO, especially given the future roadmap for the tech (size and speed nearly doubling each generation), represents an ideal solution when it comes to reliability and performance in archival, backup, and storage tasks. Especially amid the rise of big data. And LTO is a solution which is also low-cost, preserving and enhancing the margins of the cloud business model, as we leap into the abyss of requiring zettabytes (one sextillion bytes) of storage in order to handle all the data we are producing. The increasingly rapid emergence of a world of connected, intelligent devices (Internet of Things, or IoT), and the big data analytics necessarily associated therewith, will put increasing pressure on cloud vendors to migrate into high-performance, low-cost solutions like tape.
QBAK Superbly Positioned to Exploit Underlying Market Dynamics
Not only do the kinds of tape solutions which Qualstar is known for have the power to save the economics of the post-zettabyte cloud model, these tape-based storage solutions also happen to represent easy access to an ideal cloud seeding workaround. This allows companies to bypass slow, contemporary networks when it comes to getting their data to the cloud. Due to an increasingly prevalent method where data is mirrored onto physical media like a tape drive and then physically sent to the cloud storage company’s server farm, cloud seeding via couriers is quickly becoming standard operating procedure for many.
Notably, there are several other key factors that set tape storage technology out as clear winner moving forward. Native write speeds of 300 MBps or greater (SSG-NOW was clocking rates of 750 MBps on readily-compressible documents like Word files and PDFs) is one of the greatest reasons. The Linear Tape File System’s (LTFS) super easy backup and restore workflow is another key aspect, which is inherently similar to disk-to-disk mirroring, but without the need for special backup software.
Considering $203 billion plus estimates for the big data and analytics market by 2020 (a nearly 12 percent CAGR), Simi Valley-headquartered QBAK looks to be in an extremely favorable position. Qualstar’s Simply Reliable™ XLS architecture is one of the most attractive solutions on the market today for growing data centers, due to proven flexibility, modularity, and reliability. Using self-contained, standalone LRMs (library resource modules) as the core, this architecture is also easily expandable for big capacity via MEMs (memory expansion modules).
The strong data management and storage offerings from this company, like the XLS-89000 MEM unit, will no doubt see Qualstar slicing off an ever larger slice of a growing pie, as cloud vendors awaken to the performance, scalability and cost benefits of such LTO architectures. The XLS-89000 boasts an incredible 16.13 petabytes of storage at maximum compression using LTO-7 (6.45 PB native), can hold 1,075 tape cartridges, and can be easily “daisy chained” with either type of XLS enterprise library system (XLS‑832700 or XLS‑8161100). This allows for field expandability up to 7,500 cartridges.
It is important for investors to understand how this easy extensibility and scalability translates directly into ease of use for operators, making these well-thought-out designs as intuitive, as they are powerful. QBAK’s patented Compass Architecture carousel technology allows for ridiculously high-density storage of 758 terabytes (uncompressed) per square foot, while still enabling the robotic tape handler to function in a gentle-motion profile, leading to improved reliability from this vital system. Whether a company is just starting out and wants a single, automated, high-capacity rack mountable tape library like the RLS-8350 (expandable by up to 8x via RLS-85120 modules), or is ready to enter the big leagues with a fully-expanded XLS setup, Qualstar is a one-stop shop for robust storage.
N2Power a Potential Sleeper Hit
The increasing probability of data ending up on tape is an important trend for investors following the growth of the data market – and it holds true whether a company is doing backup and archival in-house, or handing off to a cloud service. This is very bullish for QBAK’s enterprise library system business, but the company’s N2Power subsidiary may hold even more promise. N2Power has developed a very healthy market for the company’s industry-spanning array of ultra-small, highly efficient power supplies, which feature some of the highest power densities on the market. The diminutive power supplies are green by design, with up to a 93 percent efficiency rating, a lower heat generation profile, and most units require little or no forced air cooling.
With a strong footing in various markets like gaming, IT (both PSUs and enclosures), medical, light industrial and high-power equipment, N2Power has accrued quite the reputation for its beefy little PSUs (power supply units). Leading to a strong foundational market position and deals like the recently announced (July 25) $0.6 million the company landed in multiple orders for PSUs set to ship over the next five months or so, from an existing, prestigious gaming industry customer. The global casino gaming market is set to expand at 10.16 percent through 2021 according to a recent report from Research and Markets. The US casino gaming market represents the lion’s share of the space and is set to hit $93 billion by 2020. And the broader global digital gaming market (minus mobile) is around $62.8 billion this year and is on-track to grow as a whole by around 6.2 percent CAGR through 2020, on the strength of continued user adoption rates, and factors such as eSports and VR.
This is a great cultural backdrop and market environment for QBAK’s N2Power, which has established itself as a favored provider of feature-rich gaming PSUs to a variety of customers, ranging from some of the top casino gaming and ATM machine developers, to LED/lighting, and other applications. The ultra-dense, efficient power supplies N2Power provides to OEM designers are much sought after, not only because they reduce thermal load and cooling requirements, which is cheaper on energy, but also because the greater density frees up crucial machine real estate to make more room for other components. N2Power makes some of the tiniest, most reliable 125W to 500W AC-DC PSUs in existence today.
Strong Bottom Line Makes a Nice End Cap
It’s little wonder then that QBAK’s Q2 results showed YoY net income up 116 percent, in part on strong sales growth, as well as product expansion in the N2Power unit. With a strong balance sheet and no debt, such data points as the 6.5 and 6.9 percent increases (respectively) in gross profit margins for the three- and six-month periods (compared to the same period in 2016) are something which should really stand out to investors as a sign of the company’s fitness. Even before taking note of a 22.8 percent reduction in operating expenses over the six month period.
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