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Storage Spending Slips

Disappointing earnings reports from IBM Corp. (NYSE: IBM), Storage Technology Corp. (StorageTek) (NYSE: STK), and Sun Microsystems Inc. (Nasdaq: SUNW) have financial analysts down on the overall storage market.

Analysts are particularly troubled by revelations from these and non-storage enterprise software vendors that IT spending slowed considerably in March as the first quarter of 2005 came to a close. This trend tempers any optimism about storage spending that might be gleaned from the positive revenue forecast of HBA vendor Emulex Corp. (NYSE: ELX) and an uptick in IBMs disk and overall storage revenue (see Emulex Breaks Through).

“The fundamental technology landscape has shown meaningful deterioration in March, fueled by corporate and consumer indecision amidst an uncertain economic backdrop,” Paul Mansky of Smith Barney

wrote in a research note today.

Mansky thinks storage might suffer less than technology in general because of positive drivers such as compliance. Yet there have been trouble signals over the past week:

  • IBM reported revenue of $22.91 billion and earnings per share (EPS) of $0.84. According to Thomson First Call, analysts expected revenue of $23.65 billion and EPS of $0.90 (see IBM Reports Q1 Results). Although IBM high-end disk revenue increased 20 percent year over year, its mainframe business shrunk and revenue from other servers was mixed. Mainframe and server sales are often a good indicator of storage revenue.
  • StorageTek forecast revenue of around $500 million and EPS from $0.18 and $0.21, compared to Thomson consensus estimates of $520 million and $0.26 (see StorageTek Revenue Falls Short ).
  • Sun reported a loss of $0.02 on revenues of $2.63 billion while analysts expected breakeven EPS and $2.73 billion in revenue, according to Thomson. Sun storage revenue declined 15.6 percent year over year, and 12.8 percent from the previous quarter.

Mansky also lowered his expectations for Fibre Channel switch vendors Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) due to recent announcements and an improving relationship between switch rival Cisco Systems Inc. (Nasdaq: CSCO) and EMC Corp. (NYSE: EMC). (See Cisco Storage Spikes and Cisco & EMC Close NAS Deal.)

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