Storage Industry Losses Looking Up


The storage industry turned in mixed quarterly earnings reports this week, but the message to investors so far is clear: storage is good.

Several storage vendors and one solution provider this week announced earnings. Many of those companies reported losses for the quarter but still beat the losses from last year or at least came in with earnings per share greater than analysts' expectations.

EMC is continuing its recent losing streak, suffering from the effects of a poor economy and intense competition from rivals, especially Hitachi Data Systems.

The company early Thursday recorded revenue for its first quarter ended March 31 of $1.3 billion, down about 44 percent from the $2.3 billion recorded for the same quarter last year. The quarter resulted in a loss of 3 cents per share, compared to with a profit of 18 cents per share last year. However, the company beat analysts' expectations of a loss of 5 cents per share, according to Thomson Financial/First Call.

Investors, who seemed to like EMC's recent cost-cutting measures, moved the company's share prices up 60 cents to $11 by end of trade on Thursday. On Friday, shares gave back some ground, falling 29 cents per share.

StorageNetworks, the Waltham, Mass.-based storage management software vendor, early Thursday reported its first ever EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash stock compensation)-positive quarter. The EBITDA earnings were $3.8 million for the first quarter ended March 31, compared with an EBITDA loss of $22.1 million a year ago.

Overall, though, StorageNetworks reported a loss of $5.4 million, or 5 cents per share, compared with a loss of $32.9 million, or 34 cents per share, for the same period a year ago. Revenue for the quarter reached $31.6 million, up 17 percent from the $27.1 million recorded last year. Analysts had been expecting a loss of 14 cents per share, according to Thomson Financial/First Call.

Investors celebrated the EBITDA-positive news by driving the company's stock up 48 cents per share, or nearly 17 percent, to $3.34. On Friday, shares retreated by 34 cents.

Host-bus adapter vendor Emulex reported strong revenue growth for its third fiscal quarter and as a result has seen two days of steadily rising share prices.

For the quarter ended March 31, Emulex reported revenue of $69.6 million, up 15 percent from the $60.4 million reported last year. Before charges, the company lost $16.5 million, or 20 cents per share, up from last year's loss of $24.5 million, or 32 cents per share.

This quarter's figures did not include a loss from the sale of a strategic investment as well as charges for cutting excess and obsolete inventory. Analysts had been expecting a loss of 13 cents per share, according to Thomson Financial/First Call.

Investors, nevertheless, liked the numbers. The company reported earnings after the close of trade Thursday, a day in which the shares had risen by $1.01 to $29.91. After a night to digest the results, investors shrugged their shoulders and took the stock up another 22 cents on Friday to $30.13.

Investors were not so forgiving of Fibre Channel switch vendor McData.

The company reported revenue of $64.5 million for its first quarter ended March 31, a 22 percent drop from the $83 million reported for the same period last year. However, revenue for the company's software and professional services reached $5.9 million, up 63 percent from last year. The company lost $17.1 million, or 15 cents per share, compared with a profit of $7.5 million, or 7 cents per share, last year. Analysts had been expecting a loss of 6 cents per share, according to Thomson Financial/First Call.

Part of the hit McData took came from its largest customer, EMC, which accounted for 53 percent of its revenue for the quarter.

The current quarter looks tough for McData, which expects its revenue growth to be flat and its pro forma loss to be between 6 cents ad 8 cents per share, compared with a pro forma loss of 4 cents per share for the first quarter.

Investors had been looking for better news. They pushed the company's stock price up 54 cents per share before the earnings report Thursday but expressed their disappointment by selling on Friday, driving shares down 80 cents to $7.60.

Datalink, the Minneapolis-based independent storage solution provider, on Wednesday reported a very tough first quarter ended March 31. Revenue for the company was $21.8 million, down 47 percent from the $40.9 million reported for the same period last year.

The company lost $1.3 million, or 15 cents per share, during the quarter, compared with earnings of $1.1 million, or 12 cents per share, last year. That loss was just less than the company's guidance range of a loss of 16 cents to 21 cents per share.

For the current quarter, Datalink expects revenue of between $24 million and $28 million, with a loss of 8 cents to 14 cents per share.

Investors heard the news after close of trade Wednesday and signaled their approval by driving shares in the company up 19 cents per share on Thursday and 88 cents per share on Friday to $6.67.

Veritas Wednesday reported revenue for its first quarter ended March 31 of $370 million. This was down slightly from the $387 million reported for the same quarter last year.

Income, however, was $44 million, or 11 cents per share, a huge jump from the loss of $156 million, or 40 cents per share, Veritas reported last year. Analysts had been expecting earnings of 13 cents per share, according to Thomson Financial/First Call.

Paul Sallaberry, executive vice president at Veritas, called the quarter a good one regardless of how it was measured. The company generated $219 million in cash, giving it a cash position of $1.9 billion. Operating margins were 25.6 percent, he said.

Of the $370 million in revenue, about $323.7 million came from end-user, solution provider and distribution sales, Sallaberry said. Of that amount, 68 percent to 70 percent came from the channel, he said.

Tape-drive and automation vendor Exabyte on Wednesday reported revenue for its first quarter, ended March 30, of $36.6 million, down more than 25 percent from the $49.1 million reported last year. The company lost $14.1 million, or 43 cents per share, an improvement from the $17.2 million, or 77 cents per share, it lost a year before.