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April 14, 2005

StorageTek stalls on growth, misses Q1 expectations

Storage Technology has disappointed Wall Street by issuing preliminary first quarter results that show both income and revenue well below expectations.

By CBR Staff Writer

For the three months ended 31 March 2005, the company said it expects to report non-GAAP net income of between $0.18 and $0.21 per share, on revenue of $500m, which will be down 3% year-on-year. The consensus forecast was for $0.26 EPS, on revenue of $520m, according to a note issued by Merrill Lynch yesterday.

The disappointing results came despite the launch of new SL500 and SL8500 tape libraries in the third and fourth quarters last year, which should have been ramping sales into this year. Tape accounted for just under half of StorageTek’s revenue in 2004.

The previous quarter Q404 was also disappointing for StorageTek, as its revenue for that period was flat or shrinking year-on-year, after currency effects were taken into account.

In that same quarter however IBM saw its tape revenue grow 25% sequentially, and this may have something to do with StorageTek’s blues and the apparent failure of its new tape gear to deliver revenue growth. IBM launched new libraries at the end of 2003, and they’ve been gaining momentum very nicely, said Bob Abraham, analyst at Freeman Reports.

StorageTek CEO Pat Martin said: A high level of transactions was pushed out of the quarter. But the company still believes it can fulfill the forecast it made in January for revenue growth in the full year 2005, which it said will match overall storage market growth of around 4% to 5%.

Merrill said that StorageTek’s pre-announcement suggests that the tape segment in general is not growing. That contrasts with researcher Freeman Reports estimate this week that the tape library market grew by 13% last year to reach $2bn, and will show 8% CAGR until 2010.

However the library market is only one part of the entire tape hardware market, which also includes drives and media. Freeman Reports said its $2bn figure for all library shipments last year includes the value of drives fitted to libraries. Take out the drives, and the bare libraries were worth around $1bn, the researcher said.

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Meanwhile the drive market was worth around three times as much, at $2.8bn last year, Freeman Reports said. So did this larger segment grow last year, and what CAGR will it show? Freeman Reports is working on the number.

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