Services Save StorageTek

On the strength of strong services, Storage Technology Corp. (StorageTek) (NYSE: STK) today reported revenues and income far above expectations last quarter.

With product revenue down, StorageTek CEO Pat Martin said the companys concentration on ILM (information lifecycle management)is paying off because its services drive ILM revenues (see StorageTek Outlines ILM Roadmap).

StorageTek reported revenue of $526.5 million and net income of $42.8 million or $0.39 per share, up from $520.3 million and $0.28 earnings per share in the same quarter last year. Analysts forecast revenue of $521 million and $0.32, according to Reuters.

Products revenue from tape and disk fell to $299 million from $312.4 million last year, with service revenue increasing to $227.4 million from $207.8 million.

“Our ILM solution is we go in and sell a customer a tape library, tape drive and disk drive,” Martin told analysts on a conference call. “We’re leading with ILM.”StorageTek rolled out two new tape libraries this year. The 300,000-cartridge enterprise SL8500 library started shipping in June and the midrange SL500 library started shipping this month (see StorageTek's Incredible Bulk and StorageTek Slings SL500).

StorageTek CFO Bobby Kocol told analysts on a conference call that the SL8500 was well received in its first full quarter shipping, and he hopes the SL5000 will pick up this quarter. “We’re firmly positioned to have improved tape automation growth,” Kocol said.

Still, StorageTek’s core tape business was flat, its disk backup declining 3 percent from last year, and virtual tape product declineing 1 percent. “Disk was lighter than we expected,” Martin admitted.

Kocol said he expects a traditionally strong fourth quarter. StorageTek averaged 18 percent sequential gain from the third to fourth quarter over the last five years, and he expects the same type of growth this year.

“The key question is, how much of a budget flush will there be in the fourth quarter,” he said.Another key question is how much of a role StorageTek’s product transition will play. The company will begin shipping a new BladeStore disk and virtual tape systems in the first half of next year, and customers might wait before buying (see StorageTek Flexes Disk).

"We're in the middle innings of a nine-inning game in product transition," Kocol said.

Martin said the Global Storage Manager SRM software acquired when StorageTek bought Storability last month would also play a major role in the company’s ILM strategy (see StorageTek Salvages Storability).

— Dave Raffo, Senior Editor, Byte and Switch