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Editor's note: the discussion of the Section 337 proceeding in the sixth paragraph has been extended by the author after original publication.

In October 2010, Overland Storage (NASDAQ:OVRL) initiated a lawsuit against IBM (NYSE:IBM), Dell (NASDAQ:DELL), and BDT, accusing them of infringement of two patents. In December 2011, IBM and Dell settled, but BDT did not. In June of 2012, the ITC judge issued an initial determination that found that the alleged products infringed the '766 patent and also found both of the patents to be valid.

On October 25th of 2012, the ITC Commission ruled on the initial determination of the judge, overturning a couple of his findings and remanding certain issues back to the judge.

The legal process and rulings are very technical, and therefore difficult for the average investor to interpret. I believe that many investors are misinterpreting this latest ruling, such as this one.

To add some clarity, Susan Decker at Bloomberg interviewed Sean Cunningham at DLA Piper (Overland's attorneys). Here are the highlights from Sean:

* Non-infringement finding of '766 patent against BDT was under trade rules regarding importation, so OVRL can still pursue infringement claims in district court under patent law.

* ALJ's finding of direct infringement against Dell, IBM stands because commission didn't address that issue; both companies had settled with OVRL

* Direct infringement finding against Dell, IBM can help prove infringement against BDT in district court

* OVRL confident '766 patent will remain valid in remand review

* Changes to interpretation of '581 patent were beneficial to OVRL for civil suit

Well, just a few hours ago the decision was handed down by the ITC Full Commission addressing the filling by Overland November 8, 2012 arguing that claims 10,12 and 16 meet the new definition of "linear array" put forward by the Commission. The Commission agrees with Overland. The following is directly from today's release. "Having considered the matter, the commission determines to grant Overland's petition for reconsideration in view of the Commission's determination that the Accused Products meet it modified construction of the term Linear Array." Sixty days from October 25th 2012 the Administrative Law Judge should, in our opinion, now find BDT's products directly and indirectly infringe on claims 10, 12 and 16, which Overland believes will result in BDT no longer being allowed to ship products with mail slots into the United States. If BDT is finally stopped from servicing and selling the infringing products in the US the settlement in our opinion could be in the neighborhood of $60-100 Million.

Basically, to win a Section 337 proceeding at the ITC, OVRL must establish that an industry protected by its patents exists in the United States by showing that it has significant manufacturing activities in the U.S. (the Economic Prong), and that its products practice at least one claim of each asserted patent (the Technical Prong). The Commission concluded that the ALJ found Overland failed to meet the technical prong of the domestic industry requirement with respect to the ’58l patent based on a technicality (violation of his Ground Rules). Upon consideration, the Commission has determined to reverse the ALJ’s finding that Overland failed to satisfy the technical prong of the domestic industry requirement, and therefore a domestic industry exists within which infringement can occur. When combined with the new definition of “linear array”, and the Commission's remanding to the ALJ make all finding regarding direct and indirect infringement, the Crux of the new argument is very simple. Under the new definition of Linear Array whether the product is put together horizontally or vertically makes absolutely no difference. The only reason why the product was not found to infringe was due to the alignment. The Commission has ruled that the now alignment does not matter in its definition. Overland's council thinks a win is a slam dunk now. In our opinion, once Overland settles with BDT, settlements with the other six defendants will fall quickly to Overland's bottom line. With $30 Million in market cap and a potential 250 Million in upcoming settlements, and Investment in Overland Storage makes a lot of sense.

Of course on the other side of the valuation table at Overland are the new products. With 35 valuable patents and technology that surpasses what is out there currently in price and quality the company has a ton to offer the market. I have been told that when going up against EMC's product Overland's scale out Naz solutions are at half the price with significantly less installation time and cost.

Going forward, Overland's strategy is to provide a complete suite of products to meet the needs of their channel partners and ultimately, the needs of their target market, the hyper-growth SMB market, and eventually compete upstream for additional market share. Since Eric Kelly has taken over the company, the focus has shifted from an OEM strategy to a branded products-focused strategy to leverage the company's valuable channel as well as its operating system. Their product suite has grown from just tape products to a robust product line that encompasses near line storage to archival (the cloud). Overland is the only company that now has Scale-out NAS, Scale-out SAN (Block), VTL, and Tape.

Overland's latest Dynamic Raid technology completely eliminates the need to provision storage capacity. This is a breakthrough product for the industry. Until now, storage required provisioning - allocating specific amounts to different groups, units or divisions of a company. When one unit ran out of capacity, more storage would need to be purchased, or existing storage re-provisioned.

Furthermore, Overland's SnapServer technology enables storage environments to effortlessly scale without downtime while ensuring maximum data protection. It's 100% compliant with Windows Active Directory and complete integration with Windows, UNIX/Linux and Macintosh environments. It offers the ability to expand and upsize with minimal effort, and can be managed remotely. The combined DynamicRaid and SnapServer technology lets any size business run its storage like an enterprise, at significantly lower cost.

Terri McClure, senior analyst at Enterprise Strategy Group states:

Many businesses are finding it difficult to acquire and manage the storage capacity and functionality needed to keep up with accelerating data growth over time. The speed of provisioning in virtual server environments has stressed the storage infrastructure and it's essential that storage solutions match that speed and ease to keep up with rapidly changing dynamics. DynamicRaid makes provisioning capacity and the management and protection of data extremely simple, plus it automates the growing of shared storage capacity while improving the predictability of future storage needs and capital expenditures. SnapServer DX enables businesses to count on improved storage utilization with less management and a highly efficient storage environment at a fraction of the typical cost.

Even Overland's bread-and-butter tape products look good. As stated above, Overland is the largest provider of tape storage in the market, by far. Now, there's nothing sexy or glamorous about tape, but its here for the foreseeable future, and the demand is growing dramatically. Research from analysts at Enterprise Strategy Group indicates:

Tape is the predominant storage media used for data protection due to its portability and, from an acquisition cost perspective, its price." As tape capacities continue to out-ship disk capacities and "the use of tape now dominates archiving over internal disk, external disk or cloud ... tape's lead is expected to grow during the next five years, demonstrating 45 percent annual growth by 2015.

Overland's storage lineup puts it squarely into the exploding small and medium-sized business storage market. With server virtualization and database applications demanding ever more capacity and performance, many smaller IT operations are looking to add networked storage. But even the entry-level products of storage titans like EMC (NYSE:EMC) and NetApp (NASDAQ:NTAP) are out of reach for these small shops, leaving the market segment to Overland and a few other companies

At $1 per share, Overland is currently selling at less than fire-sale prices. With a $30 million market capitalization, at 35% of sales, there is little downside, in our opinion. We believe the company could easily be sold for triple the market cap, and we would not be surprised if private equity offers have recently been made at these levels. The current technology, patents and client lists alone are worth double the current valuation, with no consideration for the new products, IBM and Dell settlements, and potential BDT and other awards.

Here's a rough, but conservative approach to valuing the company. For the next two years, we expect $80-$120M in top line revenue per year. Conservatively estimating $20 million already settled from the Dell/IBM settlements (THese funds have not yet been requested by Overland due to the current pending litigation with BDT), a $60 million settlement in the BDT litigation, and other litigation's from future defendants (everyone BDT has sold product to - about 20 other possible defendants) for another $50 Million. Finally, assuming the company is trading at peer multiples of 1x revenues for its tape business and 2x revenues for its cloud business, we get a stock price of over $7 per share.

Keep in mind that Overland will be a nice acquisition target long before all of their plans come to fruition, and that Eric Kelly knows how to buy and sell a company. In 2002, he and a group of investors purchased Snap Appliance for $10 million. Two years later he sold the company to Adaptec for $100 million. Then more recently, he bought it back for $3.9 million and is merging it into Overland to create the new products.

Source: Finally A Big Win In The ITC Court For Overland Storage

Additional disclosure: My fund, managed accounts and family office accounts can trade OVRL at any time. However, based on our fair value analysis at this time we have no intention of selling any shares going forward.