Bay Area Tech Corp Nets $10M in COVID-19 Aid Package — But Does It Need the Money?

Count Quantum Corp. among the big winners in the first round of funding doled out by the U.S. Small Business Administration’s Paycheck Protection Program.

The San Jose-based video data storage company received the maximum allowable amount under the program — $10 million — even though its business doesn’t appear to be bracing for a significant financial hit from the COVID-19 pandemic.

On April 6 — 10 days before Quantum applied for help from the PPP — the company told investors it expected revenue for the fourth quarter ending on March 31 would fall to $87 million from the previous estimate of $90-$100 million.

“Quantum equipment is relied on in disaster and crisis situations, and our solutions are core to many of our customers’ business continuity. As a result, we remain confident we have a business model that can weather the delays and disruption of a challenging pandemic,” Quantum CEO Jamie Lerner said at the time.

While bracing investors for production and shipping delays, Lerner signaled that the pandemic might actually be good for business.

“We also believe this crisis will be a driver for significant innovation,” Lerner continued.

The PPP was set up to help businesses with less than 500 workers cope with the COVID-19 pandemic. Quantum has 800 employees, with 550 working in the U.S. The company maintains the PPP loan is saving jobs.

“Without it, we would most certainly be forced to reduce headcount,” a company spokesperson told KQED in an email. “We owe it to our employees, who’ve stuck with us through a long and difficult turnaround, to do everything we can to save their jobs during this crisis.”

Quantum said it qualified for the program because it is classified as a computer storage device manufacturing company, in which the cutoff is 1,250 employees.

The company is coming under added scrutiny because of a U.S. Securities and Exchange Commission investigation into its accounting practices that prompted the New York Stock Exchange to delist Quantum stock last year. After a settlement, Quantum shares were listed on the Nasdaq this year.

Examples like this one have caused lawmakers to question the execution of the PPP, which was included in the federal relief package that was rushed through Congress last month.

“I am concerned by reports that the Trump administration is unfairly allocating funds to the benefit of big businesses, with millions for big corporations instead of Main Street,” said Democratic congresswoman Zoe Lofgren, who represents the Silicon Valley district where Quantum is located.

“It’s apparent that simply appropriating the funds without directing the Trump administration to get money into the hands of small businesses won’t work,” Lofgren said.

Quantum wouldn’t comment on whether it plans to give the money back, like burger chain Shake Shack made headlines for doing last weekend.

Ethics experts say companies should take a hard look at whether they need the money available through the PPP before they apply, given that funds are limited and many small businesses are operating on tight margins.

“Some companies have had to face some fairly harsh realities and have decided that this is a moment in time to close up shop,” said Ann Skeet, senior director of leadership ethics at the Markkula Center for Applied Ethics at Santa Clara University.

“The Small Business Administration says it’s not in a position to disclose fully what loans are being made and how they’re being made. And that’s really unfortunate,” Skeet said. “That’s crucial, especially right now, where trust is really the currency of the day.”

Editor’s note: KQED is among the local businesses and media organizations that have received a PPP loan. This helps us continue to provide essential information and service to our audiences during the COVID-19 pandemic.