Faced with a $102.6m charge relating to pending patent litigation and restructuring charges, Storage Technology Corp posted a net loss of $38.5m for its second quarter on Thursday, compared with $54.4m profit in the same period last year. Revenue rose 21% to $654.4m.
Without the one-time charge, Storagetek would have earned $27.2m, or $0.27 per share, in line with analyst expectations. That represented a recovery from the first quarter, when profits plummeted 85% to only $5.8m due to supply problems and product cycles. All three of its product segments storage products, storage services and storage management software showed strong growth, the company said.
Overall, storage product revenue grew 1% during the second quarter, and tape revenue was up 28% from the second quarter in 1998, due to sales of the new 9840 disk drive. Around half of the 9840s sold were for application storage, attached to high-end Unix servers rather than StorageTek’s traditional mainframe business. StorageTek says it has now achieved its high-volume production objectives for the 9840 after the early supply problems.
Disk sales revenue was down 10%. Here, mainframe sales are declining fast, but the decline is being offset by increasing sales of client-server system disks. Revenue from networking and other products was flat. Revenue from IBM declined to 11% of total corporate revenue, and StorageTek says it generated 40% of its total disk product revenue from its own sales force. IBM still currently sells StorageTek’s Shared Virtual Array disk products under the Magstar name, but entered the market with its own Shark products earlier this month and plans to end the StorageTek OEM relationship by the end of next year.
Storage services grew 21% to $185m, and storage management software grew 136% to $51m, due to strong sales of the Virtual Storage Manager, SnapShot and client-server tape backup and recovery technology.
Litigation charges arose from StorageTek’s dispute with Odetics Inc, still under appeal, but the company said it felt it was appropriate to take the charge in the second quarter after the appeals panel overturned a favorable judgement as a matter of law that reversed an adverse 1998 jury verdict. StorageTek has been accused of infringing patents covering automatic tape libraries.
Ongoing restructuring at the Louisville, Colorado-based firm saw 250 jobs cut during the quarter, towards a target of 500. More charges are to come in the third quarter, warned the company, which also warned that, although it expects sequential earnings growth next quarter, it might not make analysts expectations next time over a period when sales are traditionally flat. Analysts have predicted earnings of $0.44.
