StorageTek Swears by Services

For Storage Technology Corp. (StorageTek) (NYSE: STK), the future holds... services.

The world's dominant tape storage supplier is bulking up its services division, looking to trade on its longstanding presence with IT customers. The company hopes to tap a huge opportunity and realign itself in a market that's eschewing its traditional products.

Eula Adams, who's been VP of global services at StorageTek for a year now, says the company's professional services accounted for about 45 percent of its $2.22 billion in revenue last year. StorageTek has increased spending on the division, which covers 50 countries and includes about 2,200 employees (roughly one-third of StorageTek's total census of 7,000).

As part of its campaign, StorageTek is rolling out three kinds of "Storage Appraisal Services" this month. These services include consulting in the areas of backup and recovery, primary storage productivity, and archiving. The services include bundling of products not only from StorageTek but from other companies, such as EMC Corp. (NYSE: EMC), Hitachi Data Systems (HDS), IBM Corp. (NYSE: IBM), and Sun Microsystems Inc. (Nasdaq: SUNW).

Todd Rief, formerly senior director of corporate strategy at StorageTek, has been appointed senior director of global professional and remote services, reporting to Adams. He says IT customers are clamoring for help with backup. Many are able to back up just 65 percent of their assets, but they're using too much primary storage to do that. "Up to 80 percent of information on disk drives is replicated data, and 90 percent of that is never referenced again," Rief says.Rief sees a lot of opportunity in jobs ranging from $35,000 to over $1 million, but he also foresees engagements in the many millions. "The point is that we're helping free up trapped profitability," he maintains. If value is added, customers are willing to pay proportionally.

Right now, storage-related services account for about $150 million in service revenue at StorageTek and involve about 200 company employees, according to Adams and Rief. The storage service niche is growing at a rate of about 24 percent annually, but Adams sees no reason why that figure can't double.

"We think a best-in-class provider could grow at better than 50 percent, and we have every intention of being best in class," maintains Adams, who was a senior VP with First Data Corp. before joining StorageTek.

Adams isn't alone in thinking there's a lot of storage service business out there. StorageTek execs highlighted the move to services in the company's latest earnings call (see StorageTek Serves Up Services). Other companies have also identified basic storage consulting as a hot slice of the IT services pie: GlassHouse Technologies Inc. says it's reached profitability on a lucrative backup consulting business (see Richard Scannell, Co-Founder & SVP, GlassHouse Technologies). Other storage vendors, including EMC and IBM, also have sizeable services businesses (see EMC Posts $2.3B Quarter) and IBM Acquires, Wins IT Services Deals).

Can increased emphasis on storage services help StorageTek bulk up its earnings? It can't hurt. And in an increasingly competitive market, it will be interesting to see whether the company's claims to have an "in" with IT can ensure it a solid lead against the likes of EMC, IBM, and GlassHouse.Mary Jander, Site Editor, Byte and Switch