StorageTek sees e-business future

LOUISVILLE – Y2K didn’t cause systems to melt down at Storage Technology Corp., but 2000, nevertheless, will mark a year of rebuilding for the 30-year-old data storage company.For the first time, StorageTek (NYSE:STK) is publicly talking about reaching a much smaller customer than its traditional Fortune 500 client. The success of the nimble but well-funded Internet entrepreneur obviously has caught the Louisville company’s attention.
As dust settles from its Feb. 3 announcement that David Weiss, StorageTek’s chairman, president and chief executive officer, will resign, along with the company’s No. 2 exec, Chief Operating Officer Victor Perez, analysts pondered the company’s new intent to join the stampede to serve the new technology and Internet markets.
While a search committee looks for a turnaround savior, StorageTek will convert part of its sales force to focus on small- to mid-sized e-business companies. To pull it off, StorageTek says it will change its sales strategy from a direct-sales model to a channel-focused one.
Under that new sales plan, said to be more cost effective, StorageTek will team up its recently formed Growth Markets sales division with distributors and resellers to sell to customers using client-server systems, which are much smaller than StorageTek’s traditional large, high-priced enterprise data storage lines.
“We think some of the greatest growth is going to come from accounts that frankly, in some cases, have just gone into business,” says Susan Bailey, StorageTek corporate vice president for U.S. and Canada sales and service.
“Our intent is to have the key channel partners that we play with be the primary mechanism for distribution in the growth segment, and the growth segment is not our traditional calling pattern.”
Capitalizing on e-business looks like a smart move, analysts say, but one many other companies also have realized.
“Everybody who produces some kind of data storage hardware is targeting e-business because it seems to be where growth is,” says Bob Amatruda, senior analyst with the Framingham, Mass.-based International Data Corp.
That means alliances with companies like Sun Microsystems, announced last year, will become increasingly important. “You have a top-tier server vendor (in Sun) that has strong branding and channels, which is key to actually helping StorageTek deliver their storage products,” Amatruda says.
StorageTek officials, who have watched the company’s stock plummet to the $13 range from a 52-week high of nearly $40, now say they expect to post a year-end loss of approximately 10 cents per share. StorageTek’s annual report was to be released after The Business Report went to press.
“It’s hard to give any kind of extra faith to the company at this point,” says analyst Jim Corridore of the New York-based Standard & Poor’s Equity Group. “They’re going to have to prove that they can execute.”
1999 will go down as a year of high but missed expectations. StorageTek last year brought in Goldman, Sachs & Co. and McKinsley & Co. to map out strategic options that could have included sales or mergers. But with the investment bankers completing their work this month, StorageTek officials announced the company would remain independent, although “strategic alternatives” for its Managed Storage Systems unit are being explored.
To streamline operations, StorageTek is consolidating six business divisions into two: the Enterprise Business Group and the Client Server business Group. Over the last year, more than 2,000 employees either voluntarily separated from the company or received pink slips. Of that group, about 600 will leave this quarter.
And now two of the company’s top officials also are leaving.
Weiss, who has led the company for the past five years, says he will leave as soon as his replacement is named. COO Perez, his position eliminated as part of a leaner, more efficient management team, will leave by the end of March.
Weiss, who could not be reached for specific comment by The Business Report, told the media he was willing to accept the blame for the company’s fall from grace last year. His resignation surprised few; analysts said it was just a matter of time.
“These kinds of things are not quick in coming,´ said Bob Abraham, an industry analyst with the Ojai, Calif.-based Freeman Reports. “You could see the handwriting on the wall a long time ago.”
“Anyone who comes in here and is successful in turning StorageTek back into a proven growing company is going to be able to write their own ticket in the industry,” Corridore added.