Advanced Digital Looks Attractive
By Matt Paolucci

In the past, data storage was usually taken care of by companies such as EMC Corp. (EMC), IBM, or perhaps Storage Technology. But now, as businesses go online, the need to store data has become infinitely more important. And with this increased importance on data storage has come more companies trying to fulfill that need. A small up-and-comer in the industry may be worth a look.

Advanced Digital Information Corporation (ADIC) makes automated tape libraries. The company buys tape drives from other manufacturers and outfits them with robotic arms. These arms select a tape from a multi-tape unit, then subsequently add or access data. Units range from desktop-size to large, stand-alone units. ADIC also sells accessories such as tape media, cables, and mounting kits.

ADIC's largest customers include Dell Computer (DELL) and PC distributor Ingram Micro (IM), which account for 13 percent and 12 percent of sales, respectively. Other large clients include Exabyte (EXBT), Unisys (UIS) and Fujitsu. About a third of the company's sales are international, generated primarily in Europe.

As more and more companies are forced to establish an Internet presence, they need to a place to house all kinds of data. And many of these Web sites perform commerce functions, which are even more data-intensive.

International Data Corp. (IDC) predicts that, given current growth trends in the Internet and e-commerce, the quantity of terabytes (1 trillion bytes, or about 100 times more than a 10 gigabyte hard disk found in a home PC) shipped will increase from 57,000 in 1998 to some 1.4 million terabytes by 2003.

Advanced Digital, over the past five years, has grown revenues at a 60 percent annual clip, and earnings by more than 150 percent per year.

Sales and earnings have since slowed to more moderate levels, but the Redmond, Wash.-based company is still forecast to grow at more than 26 percent per year for the next five years, according to Zack's investment research.

The Company's second quarter profits, ending April 30, were up 56 percent to $7.6 million, or 14 cents per share, versus $3.5 million or 9 cents per share in the prior year period. Revenues increased 20 percent to $64.9 million.

Demand for ADIC's products has been so strong that in late March, management signed a lease for an additional 78,000- square feet, which should expand the manufacturing and testing capacity by approximately 100 percent. The expanded facility is scheduled to become operational this summer.

Much of the optimism surrounding ADIC centers around the Company's newest storage systems, StorNext and Scalar 100. "StorNext is a revolutionary combination of ADIC's library and software products that the company believes could create an entirely new appliance segment," said Chase H&Q's William Lewis. StorNext is slated to be available in the third quarter.

Later this summer, IBM will ship its own branded versions of ADIC's new Scalar 100 and FastStor product lines. Lewis said he expects "material revenue from both IBM and StorNext to build from the third quarter, leveraging the top-line in 2001."

Despite all the positives, shares of ADIC trade for a just third of its 52-week high of $50.50, and just 28 times fiscal 2000 earnings estimates of 56 cents per share, ending October. The closest pure competitor, EMC Corp., trades for 90 times fiscal 2000 earnings, but is also forecast to grow a bit faster than Advanced Digital.

With almost no debt and lots of Buy ratings, ADIC looks like a company with a very bright future.