On the whole, analysts praised StorageTeks results but said there were several issues that are probably giving Wall Street pause. Theyve had a pretty good run this year, and I think their shares are fairly priced, says A.G. Edwards analyst Shebly Seyrafi. However, he adds, While its good that tape did not decline year over year, its not a growth sector.
And Merriman Curhan Ford & Co. analyst Brion Tanous notes that the bulk of StorageTek's product revenue comes from tape. "If the companys going to experience growth its going to have to come from tape," he says.
StorageTek, which relies on tape sales for 45 percent of its revenues, recorded total tape revenues of $235.7 million for the quarter. Thats a 9 percent increase over last quarter, but relatively flat compared with the year-ago quarter. In a note published this morning, Seyrafi points out that IBM Corp. (NYSE: IBM) saw its tape business grow 8 percent sequentially, suggesting that both companies benefited from market growth rather than taking share.
Goldman Sachs & Co.
analyst Laura Conigliaro, on the other hand, writes in a note that she is so impressed with StorageTeks tape revenue increase, as well as its ability to take share from competitor IBM, that shes raising her 2004 revenue and earnings estimates for the company. Conigliaro expects the company to post earnings of $1.50 a share on revenues of $2.3 billion next year. "[W]e are assuming that [StorageTek] will begin to show growth in its tape business in 2004 largely due to competitive share gains from companies such as IBM as well as benefiting from an environment geared toward low-cost data retention," she writes.
In addition to uncertainty over StorageTeks strength on the tape side, investors could be worried that the company will be hurt by a weak European economy next quarter, analysts say. Europes the concern for September, Tanous says.