StorageTek Announces First Quarter Financial Results; Net Loss of $22.5 Million or $0.22 Per Share Excluding One-Time Charges - Company Financial Information

Edge: Work-Group Computing Report, May 8, 2000

StorageTek (Storage Technology Corp., NYSE:STK) Tuesday reported first quarter revenue of $459.7 million, as compared to revenue of $517.5 million during the same period last year.

For the quarter ended March 31, 2000, a net loss of $0.22 per share was reported, excluding restructuring and other one-time charges. Restructuring and other related charges of $26.3 million, reduced earnings by $0.17 per share on an after tax basis, resulting in a reported loss of $39.5 million, or $0.39 per share for the first quarter of 2000. The company reported earnings of $0.06 per share in the first quarter of 1999.

"I am pleased with our improvements in the quarter. We made measurable progress in our restructuring efforts, gained market share, strengthened our core technologies in tape and tape automation, virtual storage and open SAN and implemented improvements in our US/Canada distribution channel," said David E. Weiss, StorageTek chairman, president, and CEO. "In regard to the restructuring, we committed to reduce 1200-1400 positions. We have met that goal with a reduction of approximately 1250 positions worldwide. And this is a net number as we hired over 300 people in the same time period to fill critical skill requirements.

"In the first quarter, total revenues of $459.7 million consisted of $301.1 million in storage products revenue and $158.6 million in storage services revenue. Keep in mind, in the first quarter of last year the IBM OEM relationship was approximately 12% of total revenue. Historically, we realize 20% of our annual revenue in the first quarter which puts us on track for $2.3 billion for the year.

"We said we would exit the resource-intensive storage utility business yet maintain a presence in this rapidly growing business segment. This was accomplished when on March 30, 2000, we announced the formation of ManagedStorage International, Inc., a business that will offer services including storage on demand, server backup, online PC backup, and content management. We received a minority interest in MSI and have an exclusive two year contract to provide tape and tape automation products to the new company," continued Weiss.

"As previously committed, we undertook the major task of re-architecting our U.S./Canada sales and service organization. We implemented organizational changes that would exploit the market opportunities fueled by e-business storage requirements, engaging an expanded channel sales model while strengthening our direct sales force. We also initiated fundamental process changes focused on improvements in sales productivity, asset management, pricing methodologies and forecasting. This work was completed during the quarter, and we expect to gain more from our focus on operational excellence throughout the year," Weiss concluded.

The first quarter marked the successful introduction of the StorageTek L-180, the industry's first all-native Fibre Channel automated tape library. Also announced during the quarter was native Fibre Channel for 9840. Both of these products achieved rapid acceptance and exceeded StorageTek's projections. As a result, StorageTek believes that it continued to gain market share in the tape market during the quarter.

StorageTek's virtual technologies have seen increased acceptance as well. The Virtual Storage Manager continued to build momentum in the tape market as sales almost doubled year over year. The launch of the next-generation 9500 SVA (Shared Virtual Array) platform in the middle of the quarter has generated keen customer interest, resulting in moderate sales in the first quarter, and a growing pipeline going into the second quarter.

The company continued to extend its leadership in the storage area network market, with integrated SAN revenues more than doubling over the prior year's first quarter. StorageTek has hundreds of open SAN installations sold to date, unlike other vendors' who sell proprietary systems. It has already begun to deliver tape pooling as part of its SAN solutions and will deliver heterogeneous disk pooling in the next few quarters.

On a related note, StorageTek will announce the next stage of its open SAN strategy at the Networld Interop conference in Las Vegas next week. During this announcement, the company will articulate its two-phase approach to delivering on the Advanced SAN environment of the future. Included in the announcement will be the new Fibre-Ready StorageTek 9176 Intelligent Storage Solution that can leverage multiple RAID levels with specific applications. Also at this conference, the StorageTek 9738 Tape Library will be recognized with the 2000 "Product of the Year" Award by Network Magazine.

Robert S. Kocol, StorageTek's chief financial officer, said, "We continue to realize benefits associated with the asset management disciplines we implemented as part of our restructuring efforts in 1999. Our working capital efficiencies allowed us to increase cash to $228 million while reducing the borrowings under our credit facilities by $92 million. We also realized further reductions in inventory and accounts receivable days sales outstanding. Overall, we are on course to achieve the $100 million in savings in 2000 that we projected in February, and we expect to be at a run rate of $150 million in annualized savings by the end of the year. Our task going forward is to capitalize on the many changes we are making, extend them throughout the company, and seek out new incremental improvements in the way we do business."