Analysts See Mostly Bright Earnings

Customers opened their checkbooks for storage wares at the end of 2006, according to early forecasts from financial analysts.

That's no surprise, considering storage vendors usually finish the year strong due to a "budget flush," as companies spend what's left of their annual budgets.

With companies a few weeks away from reporting their results from last quarter, none of the major vendors have lowered their forecasts. Well, Adaptec did, but blamed it mostly on disappointing results of non-storage OEM products sold by IBM. (See Adaptec Lowers Outlook.)

In news that analysts say set the tone for the quarter, storage reseller Bell Microsystems said it did better than expected. (See Bell Micro Has Record Q4). Bell Micro set its preliminary revenue at between $1 billion and $1.05 billion, which would be an increase of around 20 percent from last year and well above its previous guidance of $920 million to $970 million.

Analyst Dan Renouard of R.W. Baird wrote in a research note that Bell Micro's strong performance validates Baird's VAR survey for last quarter that indicated "a strong quarter for servers, networked storage and hard drives."We'll know a lot more Jan. 23, when EMC, QLogic, and Sun host calls to kick off earnings seasons.

Analysts agree EMC had a strong fourth quarter, and even news of expanded layoffs failed to dampen its momentum. In fact, EMC's contraction received a better reception than its expansion did last year.

Last Friday EMC revealed plans to layoff 1,350 -- 100 more than it previously disclosed. (See EMC Grabs Hatchet.) Its stock price has since risen $0.71 to $14.31. This contrasts with the steep decline in shares after EMC spent $2.1 billion on RSA Security in June. (See Did EMC Overpay?)

More than layoffs impacted EMC stock price. UBS upgraded EMC and rivals IBM and Network Appliance Monday because of solid storage demand, and at least three analysts issued notes claiming EMC had a strong fourth quarter. Shebly Seyrafi of Caris & Company forecast earnings per share (EPS) of $0.19, $0.03 higher than the guidance EMC gave in October.

Tom Curlin of RBC Capital Markets issued a note saying he expected EMC to close a "comfortable quarter" with strong sales of the new Clariion CX-3 midrange SANs and Celerra NAS products. (See EMC in Full Launch Mode.)He also wrote that the EMC layoffs accompanied a sales force reorganization that will result in teams that specialize in certain products, rather than trying to sell all of its growing offerings, which keep growing with acquisitions.

Baird's Renouard added "feedback from VARs and industry contacts suggest EMC had a strong [fourth quarter] with good prospects [this quarter] and beyond. We believe the company has improved execution in its core business and continues to benefit from VMware momentum."

As for the layoffs, Renoaurd wrote: "we believe the restructuring will help executives manage one large organization, rather than several disparate fiefdoms."

There are mixed messages on HBA sales from Emulex and QLogic. Caris' Seyrafi downgraded shares of both companies this week, claiming weak sales last quarter. Part of the problem for QLoigc, Seyrafi writes, was that its large customer Sun "appears to have not had a good [four] quarter selling storage."

However, Curlin of RBC writes that Emulex did as expected in the quarter and QLogic may have surpassed expectations. Aaron Rakers of A.G. Edwards also says Emulex and QLogic had strong quarters.The sunny forecasts leave out Sun, though. Curlin agrees with Sheyrafi that Sun struggled -- especially with the products it acquired from StorageTek -- although he says its Thumper hyrbrid storage/server and NAS products were beginning to gain steam.

Other key storage vendors such as NetApp and switch companies Brocade, Cisco, and McData don't end their quarters until the end of the month and will report their numbers in February.

Dave Raffo, News Editor, Byte and Switch