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October 28, 1999

StorageTek to Restructure, Cuts 20% of Workforce

By CBR Staff Writer

Storage Technology Corp, which warned investors earlier this month that its third quarter 1999 would be well below expectations, duly posted a $16m loss and flat earnings yesterday. To counteract the bad news, the company said it was starting on the first phase of a major re-structuring that it hopes will see $150m in annual savings. The plans call for a reduction in staff of up to 20% at the Louisville, Colorado-based company’s workforce, or reductions of between 1,500 to 1,750 people, by the end of Q2, 2000.

StorageTek reported revenue of $573.7m for the quarter, level with last year’s third quarter revenue of $571.1m. The net loss of $16.0m included $32.4m in charges relating to litigation expenses and an employee voluntary separation charges. Excluding those non-recurring charges, profits would have been just $4.7m, compared to $50.6m profits a year ago.

The company blamed disappointing margins in consulting and integration services, and its failure to bring in revenue from products currently under evaluation at customer sites for the shortfall. Some of this was due to customers delaying purchasing decisions because of their Y2K testing issues said StorageTek’s chairman, president and chief executive officer David Weiss, who warned that these issues would continue to be felt more in the mainframe side of its business than in StorageTek’s growing, but still small, client-server business, and would continue into the first quarter of 2000. Excluding mainframe-related sales to IBM Corp during the quarter, StorageTek says it saw 16% revenue growth.

Storage products revenue of $355.7m was 7% lower than in the same period last year, despite a 70% growth rate in client-server tape products, including the new 9840 tape drives. Disk revenue was down due to the decline of sales to IBM, which is in the process of withdrawing from OEM agreements with StorageTek. Networking and other revenue increased, and storage area networking infrastructure products also made an increased contribution, the company said. Services revenue grew 5% to $171.6m, and storage management software revenue grow 71% to $46.4m, largely due to sales of the Virtual Storage Manager system.

The re-structuring will focus on the most promising businesses, including tape automation – the company’s most reliable cash generator – and storage area networks and virtual technology for both tape and disk, which are the fastest growing businesses. Investments in the solutions business group, including consulting and integration services, managed storage services and vertical and horizontal applications, will be cut and new business will not be sought, except in the SAN and virtual storage business consulting. Corporate infrastructure will be simplified in an effort to cut costs.

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