Storage Bigs Brash on Budgets

In the opening days of 2004, its starting to look as if the biggest trend in storage this year will have nothing to do with technology and everything to do with money. Spending is in vogue, if storage executives are right in their forecasts.

With every positive financial result posted this week came a rosy outlook for IT spending, specifically on storage. So while companies bask in what looks like a budget flush to end 2003, they also look ahead to better things in the coming year.

“We are seeing the beginnings of what we hope is a very strong economic recovery,” Storage Technology Corp. (StorageTek) (NYSE: STK) CEO Pat Martin told analysts during the company's earnings presentation last night. “We expect that customers will continue to move forward many of their IT projects, and we expect storage will continue to be a priority within that IT spending.”

Martin was so optimistic that he raised his company’s 2004 income guidance from between $160 million and $170 million to between $165 million and $175 million. StorageTek posted $655.1 million in revenue, $71.3 million in net income, and an EPS of $0.64 per diluted share in its report (see StorageTek Announces Q4).

EMC Corp. (NYSE: EMC) CEO Joe Tucci also gushed about better things to come after completing a strong quarter this week (see EMC: Everything's 'Better').“I believe that 2004 will be a better year all around than 2003,” he told analysts yesterday morning. “I believe you will see better economic growth globally, with all signs leading to an increase in capital spending.”

Tucci forecast growth in overall storage spending of about 6 percent, with overall IT spending up from 3 percent to 4 percent.

This is all in stark contrast to the gloom and doom from a year ago, when flat was about as fat as anybody expected to get.

Perhaps from force of habit, there are some words of caution still heard. The real spending spree isn’t expected to come until the second half of the year, and a lot can happen in six months.

”Indeed, there are encouraging signs from some customers, but we are still seeing many companies looking for ways to work through constrained budgets,” StorageTek CFO Bobby Kocol told analysts yesterday. “Activity levels seem to be increasing, but I judge rebounding economy by the number of actual invoices we can cut.”Computer Associates International Inc. (CA) (NYSE: CA) CEO Sanjay Kumar expressed similar sentiment after CA posted net income of $22 million for the last quarter amid a brewing accounting scandal (see Computer Associates Profits in FYQ3 and CA Issues Statement on Exec). ”Our own customers are starting to pursue IT projects that have been placed on the backburner for some period of time,” he said. “But yet, they remain cautious. In fact, our customers are wiser and more thoughtful than at any time during the technologies' high growth phase of the late 1990s.”

Results of a recent online survey conducted by Byte and Switch Insider, this publication's online research service, also indicate caution may be in order (see Survey Probes Storage Budgets). Nearly half of respondents said their storage budgets for this year will be "about the same" as their 2003 ones.

More information will help determine the lay of the land. We still haven’t heard earnings reports from the Fibre Channel switch makers such as Brocade Communications Systems Inc. (Nasdaq: BRCD), Cisco Systems Inc. (Nasdaq: CSCO), and McData Corp. (Nasdaq: MCDTA), all of which have struggled with pricing pressures the past few quarters.

— Dave Raffo, Senior Editor, Byte and Switch