StorageTek Expects Channel Growth Amid Softened 3Q Sales

StorageTek CFO Robert Kocol said about 47 percent of the company's sales went through the channel during the quarter, ending Sept. 24.

Channel sales slipped about 2 percent compared with the same quarter last year, but are up 6 percent quarter to quarter, Kocol said. Overall quarter-to-quarter revenue growth grew by only 2 percent.

Kocol said the company expects new product offerings to help boost channel sales. "Our indirect channel sales are gaining strength and should continue to do so with the new product offerings we're bringing to market," he said.

While sales of the company's new enterprise-class SL8500 tape library are off to a good start, StorageTek has only started to ramp up sales of its new SL500 modular tape library, which is aimed more for the channel, Kocol said. The company expects increased sales next year of its virtual tape product, he said.

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Patrick Martin, chairman, president and CEO, acknowledged weak sales for StorageTek's disk-based products. He blamed that weakness in part on the company's focus on higher-margin deals at the expense of lower-margin opportunities. "We basically walked away from a lot of low-margin deals," he said. "We're still seeing an awful lot of deals going with single-digit margins in the marketplace, which we won't bring into this company."

Martin also said he has yet to see the disk-to-disk business have a market impact, while demand for tape libraries are still strong.

"I'm not smart enough to lay out everything that happened," he said. "But clearly we're in a product transition phase. I've read an awful lot about this disk-to-disk as opposed to disk-to-tape backup, and we're not seeing it as a material impact to our business."

For the quarter, StorageTek revenue was $526.5 million, up slightly from $520.3 million for the same period last year. The company earned $42.8 million, or 39 cents per share, in the third quarter, compared with $31.0 million, or 28 cents per share, last year.

Storage services revenue rose 9.4 percent to $227.4 million in the quarter compared with last year, even as product revenue fell more than 4 percent to $299 million.