Notes to the financial statements - Plasmon

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UDO drives will be manufactured in our Colorado Springs facility and will have an initial capacity of 30GB. Future generations of UDO products will have capacities of 60 and 120GB Plasmon Plc Annual Report 2003 Chief Executive’s Review 10 UDO launch plans In addition to the drive and media development programme, during the past year we have invested considerable time and resources on our UDO launch plans. We successfully recruited new marketing leadership in both the US and Europe and are now adding business development resources specifically focused on UDO to our sales and marketing teams. The launch programme for UDO initially focused on trade shows and started with the first demonstration of working UDO drives at Comdex in November 2002. We also demonstrated the products at the AIIM show in New York and Cebit in Hanover, which is the largest IT trade show in Europe. In addition to the product demonstrations, we also presented a series of seminars that explained UDO technology and its positioning in the overall storage market. We received a considerable level of interest from these initial activities and UDO is now well known in the storage industry. We are now commencing the second phase of our launch activities with a technical conference for third party software vendors to enable them to understand the technology and integrate it into their software applications. We are also planning a series of press and media tours later in the year to generate general awareness of UDO and increase its exposure as we move into initial production shipments. The final element of our UDO launch plan has focused on potential OEM customers and our efforts to educate them and support their integration activities. The overall response to UDO has been excellent and we believe the superior cost-
performance benefits of the technology should attract significant OEM endorsement over the coming months. Storage market overview The storage market continues to be a significant portion of the overall IT market and the revenue declines of the last few years stabilised in 2002/3. Storage technology is now entering a period of significant change that will provide a number of opportunities and challenges for Plasmon in the near future. The drive towards networked storage continues to gather momentum with the goal of eradicating ‘islands of information’ and making all data available across the enterprise. Networked storage is therefore driving the requirements for storage area networks (‘SAN’) and network attached storage (‘NAS’) solutions and the consequent need for Plasmon’s optical library solutions to integrate seamlessly into these environments. Another important development in the storage market last year was the arrival of cheap, high performance Serial-ATA hard disk drives. Due to their low cost, these products are now being promoted in disk-to-disk back-up solutions that are challenging the traditional market for back-up using tape libraries. In addition, the low-end tape library market largely moved to a commodity model last year with the large PC brands beginning to promote products directly to the end user, bypassing traditional storage hardware channels. From Plasmon’s perspective, the most important development in the storage market has been the recognition of the importance of secure archival storage following the high profile corporate and securities fraud cases in the US last year. There are now growing compliance regulations in most industry sectors to mandate how electronic records must be archived. These regulations are driving strong interest in data archival products such as UDO. These developments have also attracted the attention of traditional hard disk vendors such as EMC and Network Appliance, who are offering Serial-ATA disk based solutions with Plasmon Plc Annual Report 2003 enhanced software to prevent data deletion as an alternative to traditional write-once optical archive solutions. These changes and developments in the storage market are generally very beneficial for Plasmon as we launch our UDO archive solutions in the coming year. However, the downside is in our tape business where we expect revenue growth to remain difficult in a market under severe margin pressure. In addition, the trend towards networked storage solutions will require updating of Plasmon’s NAS connectivity offerings to improve the ease of deployment of our UDO products. 5.25" Technology Over the past few years, our sales of 5.25" optical libraries to IBM have declined by some 60% as they continue to sell last generation 5.2GB write-once solutions and have not adopted the latest 9.1GB technology. In December 2002 we signed a new contract with IBM to provide native support for Plasmon libraries on their iSeries (AS400) server platforms. In the future, this new agreement will enable Plasmon to sell UDO libraries directly to the IBM customer base to replace sales of the previous generation products we currently supply to IBM on an OEM basis. Plasmon brand channel sales of 5.25" products continued to grow last year but failed to make up the IBM shortfall. Overall sales of 5.25" technology declined some 6% to £24.9m as cheaper DVD solutions increased their market penetration but we also increased our market share in 5.25" libraries at the expense of Hewlett Packard. Our strengthening position will serve as an ideal launch point for UDO solutions in 2003 when we expect the increased capacity and fivefold decrease in incremental cost of UDO will drive renewed growth in our core 5.25" business. During the past year we continued to migrate customers to our new G-Series range of 5.25" libraries and away from the older M-Series products. We now plan to end of life the M-Series at the end of 2003 which is also planned to be the last shipment date for the IBM 3995 variant of the product. Chief Executive’s Review 11 In late 2002 our automation engineering team in Colorado Springs commenced development of a new range of entry level G-Series libraries. These products will have capacities from 24 to 180 cartridges and provide market leading features at a lower cost than our existing products. First shipments are scheduled to coincide with initial UDO shipments in September 2003 and we are already seeing strong OEM interest in the cost/performance attributes of the new range. The new products have also been designed to accommodate our next generation NAS hardware internally to provide integrated network storage solutions. The market for 5.25" products has been in slow decline in recent years as lower cost DVD solutions have emerged. However, UDO will redress this cost disadvantage and we expect some major OEM’s to endorse the technology in 2003, which will lead to renewed growth for 5.25" products and the establishment of UDO as the de-facto professional optical storage standard.
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Notes to the financial statements - Plasmon

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