By William Fellows
Securities analysts on Data General Corp’s second quarter earnings call pulled no punches yesterday when they asked senior management why, in the light of another barely profitable quarter, the company isn’t, in their opinion, maximizing shareholder value by selling off its hottest ticket, the Clariion storage business. DG’s answer wasn’t very clear but the same questions has been heard before. If it sells Clariion there isn’t much left. It needs to sell the baby with the bathwater.
DG reported second quarter net income of $1.7m up from a loss of $4.5m last time on revenue which declined 1.7% to $355.3m from $361.8m. Earnings per share were $0.03, two cents shy of consensus expectations. At the six month mark net income was $18.2m up from a loss of $1.0m on revenue which declined 0.8% to $720.9m from $727.1m.
What’s clear is that there’s few if any OEM opportunities left while Clariion is with DG. The company said it is creating a new direct sales force – 50 onboard, 50 more by year-end to target Sun, HP, IBM, Compaq and NT users.
Excluding the declining HP OEM business, Clariion revenue rose 50%. Including it, the business rose 12% year over year. The HP business was worth 16% of Clariion’s $103m revenue in the second quarter. Fibre Channel now accounts for 60% of Clariion revenue. The Dell OEM deal is now worth 10% of Clariion revenue, up 100% sequentially. Revenue from Dell should exceed the HP component next quarter, DG said. It rather feebly said that the creation of the new direct sales force (how it plans to pay for it isn’t clear) does not mean it is giving up on OEM opportunities. It claims sales of ccNUMA servers are driving the $135m Aviion business as they bring in additional networking, service and support revenue.
Aviion sales were $133.5m in the year-ago period. Although ccNUMA sales were $26m in the quarter, down from $32m sequentially, they were up 50% year over year, says DG, which says it fully expected the seasonal downtick. Healthcare is the largest Aviion vertical, accounting for 25% of sales in the quarter. NT continues to represent 60% of sales. NT sales were up 13% year over year. Contract revenue declined from $12m to $2m, MV minicomputer ships declined by 66% to $2m, and ships of 88000-based Aviions declined to $2m.
