StorageTek: No IT Spending Uptick

Storage Technology Corp. (StorageTek) (NYSE: STK) announced solid quarterly earnings today, though product growth dropped a bit.

The company reported net income of $23.3 million, or 21 cents per diluted earnings per share, and revenue of $515 million. This compares with net income of $71.3 million in net income, or 64 cents diluted EPS, and revenue of $655.1 million last quarter (see StorageTek Aims Higher).

Storage products accounted for $294.6 million, about 57 percent, of total quarterly revenue. Within storage products, tape represented for $223.08 million, nearly 76 percent, of revenue; disk was $44.2 million, or 15 percent; network products were $17 million, about 6 percent; and other gear accounted for $10 million, or 3 percent.

While overall product revenue was less than last quarter, StorageTek execs stressed ongoing caution among IT spenders, as well as the sense that many customers may be holding up purchases as they wait for StorageTek to make available its new high-end tape library, the SL8500, later this year (see StorageTek's Incredible Bulk).

"While the IT environment shows some signs of progress, there's no real growth in budgets," CEO Patrick Martin told analysts on a conference call.At least one analyst notes the slight droop in StorageTek's disk product revenue. Kaushik Roy of Susquehanna Financial Group, says StorageTek's disk earnings, which he says represent sales of midrange products, were down roughly 17 percent -- from $53 million last quarter to $44.2 million this quarter. That compares unfavorably with EMC Corp. (NYSE: EMC), which reported increased sales of its midrange Clariion products in its recent earnings (see EMC Earnings Up).

On the analyst call, StorageTek execs also acknowledged disk revenue growth for the year could come in at around 15 percent, compared with 17 percent for the year in 2003.

The disk droop hints that while StorageTek has robust cash flow, it may need to eventually take a peek at the rate of its product growth, particularly as tape products are often viewed as "mature" technology eventually earmarked for replacement by disk.

That said, the company had little bad news, aside from ongoing slowness in customer spending: Indeed, a tax rate change has caused management to upgrade total yearly revenue guidance, from $165-$175 million for the year, to $178-$190 million.

Mary Jander, Site Editor, Byte and Switch0