StorageTek Promises End-of-Year Rally.

Storage Technology Corp is promising to bounce back from the poor quarterly results it posted yesterday inline with the pre-announcement it made earlier this month.

While the current and traditionally quiet third quarter will show only flat or limited revenue and income growth for the storage giant, new products in a very strong fourth quarter will still take the company to a low to mid-single digits percentage revenue growth target for 2004. That target is however slightly lower than the mid-single-digit guidance given in January.

"Clearly the question for us is whether we are going to be able to deliver that fourth quarter growth. We're betting that customers will come out spending then," StorageTek CEO Pat Martin told ComputerWire.

StorageTek last month shipped its SL8500 high-end tape library that replaces its flagship Powderhorn devices. In the fourth quarter it will ship a new mid-range library, together with new ATA disk arrays, and a version of its tape virtualization software ported from mainframe to Open Systems.

"the fourth quarter is when all our new products will happen. The SL8500 will help our channel business dramatically," Martin said.

For the quarter just completed, StorageTek scored an 18% year-on-year increase in net income that reached $36m, the sixteenth sequential income growth in a row for the company.

But revenue fell by 2% year-on-year to $516m, despite 9% growth in services revenue. As for other suppliers recently, StorageTek said it entered June with a strong sales pipeline, but ultimately the customers did not cut the checks, especially not in North America.

StorageTek also suffered poor revenue from sales of tape media, which was lowered by an overall shift in tape cartridge pricing via the channel.

"The fall off in media accounts for much of the reduction in our tape revenue, because the decline in our tape library sales was offset by our tape drive business," Martin said. The same problem with fluctuating cartridge prices affected Quantum Corp last year, but according to Martin has never before affected StorageTek. "In all honesty we don't yet know what happened, but it looks like it happened across the entire market."

Despite strong tape library sales by IBM recently, Martin insisted that IBM had not gained at StorageTek's expense. Instead he said IBM is continuing to sell into its own customer base, while StorageTek expects most of its SL8500 customers to sell into its PowderHorn base. This would be consistent with slow StorageTek tape library sales being in part the result of customers delaying purchases in anticipation of the new box.

Martin commented that EMC Corp's strong mid-range hardware sales but weaker high-end sales underlined that the recent spending problem is among large customers. He said Veritas' recent revenue shortfall was related to StorageTek's.

"We sell Veritas' products with our tape products, and we're a pretty meaningful distributor for them. When partners like us don't sell as many tape libraries, Veritas suffers," he said.

Martin had bad news for tape and disk maker Quantum Corp. According to StorageTek, Quantum's share of the Open Systems tape drive market, based on its SDLT drives, is being eaten into by the rival LTO drives supplied by Certance, Hewlett Packard and IBM. This contrasts with analysts' comments until now that SDLT is holding its own with around a third of the market.

"We're selling five to seven times as much LTO as SDLT, and we've seen a 25% growth in LTO sales. It's clear that LTO is gaining share. HP and IBM are two strong players with strong channels, and they've been spreading the gospel," Martin said.