StorageTek beefs up product line

LOUISVILLE — A month after the first wave of 500 employees were to leave Storage Technology Corp., life at the data storage company seems to be business as usual.

“People are just moving on,” says one engineer who was approved to leave the company through its voluntary separation agreement but has decided not to leave. “They’re throwing going-away parties, and we’re just trying to get the work at hand out the door.”

StorageTek met expectations July 29 when it reported diluted second-quarter earnings at 27 cents per share — just what analysts had predicted and a comeback from April when first-quarter earnings came in at 6 cents per share. The company reported second-quarter revenues at $654.4 million, a record 21 percent increase from $542.3 million a year ago and a 26 percent increase over the first quarter 1999.

StorageTek reported a net loss for the quarter of $38.5 million, or 38 cents per share, a result of pending patent litigation, the company’s voluntary separation deal and restructuring program. StorageTek is in the middle of fighting a lawsuit with Odetics Inc.

IBM Corp., in comparison, announced its second-quarter diluted earnings July 19 at $1.28 per common share and reported its second-quarter net income at $2.4 billion in 1999 compared to $1.5 billion in the second quarter 1998.

“The stock prices (for StorageTek) are so far down at this point that it seems like even with all the storage companies I’m seeing, no bad news seems to be able drive them down much further,” says Jim Corridore, a technology analyst with Standard and Poor’s Equity Group. “They’re not at a historic low, but compared to the last couple of years, the stock has really depressed.”

Analysts say StorageTek’s current stock prices might reflect people’s worries that StorageTek’s alliance with IBM Corp., which had been reselling StorageTek disk products since 1996, is coming to a close at year end. IBM in July released the Enterprise Storage Service, also called “Shark,” which the company says has the highest capacity in the industry.

Still StorageTek Chief Executive David Weiss isn’t deterred and says his company has experienced strong revenue growth in all segments of business — storage products, storage services and storage management software.

“Our success was a result of broad-based global participation,” Weiss says.

Meeting expectations

Weiss endured heavy criticism after StorageTek reported first-quarter earnings earlier this year. He proposed voluntary separation as a way to cut costs, and Corridore says it was the right thing to do because “aggressive and destructive” pricing pressures in the data-storage industry made the strategy necessary. Corridore says some companies have negative gross margins because their costs exceed what they make.

“They’re going to have to continue to do things like that because as pricing declines and margins decline, the only way to improve is to improve the cost structure,” he says. “(StorageTek) needs to able to get past their supply problems. They need to prove that there’s life after IBM and basically they have to survive until industry fundamentals improve.”

New products

StorageTek was busy cranking out products in July, falling back on its bread-and-butter tape systems and releasing an enhanced version of its 9840 tape drive, which the company says will allow customer to attach IBM’s AS/400 server platform to StorageTek tape libraries without additional investments in tape automation.

StorageTek is anticipating rapid growth with AS/400 systems, and in response increased its AS/400 support staff by more than 50 percent during the first half of this year.

“What they’re doing with that is just broadening the market for that by allowing it to attach to another system platform in the IBM AS/400,” says Fara Yale of the California-based market research firm Dataquest.

StorageTek also is beefing up its disk offerings with the availability of the Shared Virtual Array, which the company says can handle double the data as existing virtual disk arrays and can consolidate large applications onto a single storage system. StorageTek also launched a campaign to expand product capabilities and product warranties for StorageTek and IBM virtual disk array customers, who are said to represent 27 percent of the disk storage market.

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