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Storage Financials Take a Dip
Most report declining revenues, with a few big losers on bottom line
April 28, 2006
4 Min Read
Normal seasonality, shifting relationships between vendors, a slowdown in storage spending... Analysts have had a field day this week second-guessing the reasons for storage vendors' crummy quarterly results.
Hitachi Data Systems had the best performance of the bunch, most of which sell through OEM partners. Its revenue, extracted from the SAN and NAS numbers reported by its parent Hitachi Ltd., fell 2 percent sequentially while growing 19 percent over the same quarter last year.
The sequential drop isn't huge considering there is almost always a drop off in storage revenues between the fourth quarter of one year and the first quarter of the next. But HDS had shown sequential growth in the first quarter of recent years.
"The reported modest sequential decline represents a first for [this quarter] in more than five years," analyst Aaron Rakers of A.G. Edwards wrote in a note to customers. Still, Rakers surmises that Hitachi won market share in the quarter from its main SAN rivals EMC and IBM.
Hitachi sells its own systems, but also sells high-end SANs through OEM deals with Hewlett-Packard and Sun Microsystems. The other vendors reporting were Emulex, FalconStor, LSI Logic, and Overland Storage, all primarily OEM vendors. Between them, their partners include most of the largest storage systems vendors and most of their results were soft."We remain cautious on the storage sector in the near term, given weaker than expected results from Seagate and Emulex, and ho-hum results from EMC," Wedbush Morgan Securities analyst Craig Berger wrote today in a note to clients. (See EMC Hiccups, Waits for Clariion.) "In total, we think Q1 and Q2 storage dynamics are shaping up to be in-line to slightly weaker than expected, though not a disaster."
LSI Logic's revenue of $476 million was up 6 percent from last year and down 6 percent from last quarter. CEO Abhi Talwalkar said LSI's Engenio storage systems division had strong sales of 4-Gbit/s midrange SAN systems, and has sold 3,000 since they started shipping last June through IBM and others. (See IBM Drives 4-Gbit/s.) But while Engenio revenue was up 22 percent from last year, it was down 12 percent from last quarter.
Overland Storage lost $6 million or $0.44 per share, compared to net income of $2 million and $0.14 EPS a year ago.
"I'm not satisfied with the results," Overland CEO Chris Calisi said. "From what we heard, it was an industry-wide issue and we have not been able to identify any of the causes."Last year HP said it would stop shipping a tape library it OEMed from Overland. (See Overland Loses HP OEM Deal.) Considering HP accounted for most of Overland sales this accelerated Overland's plans to get more into disk-based backup and data protection software.
Now Calisi says his forecast that HP revenue would be almost gone by the end of this year was "overly pessimistic," and he expects revenue from HP to decline at a slower rate than expected and continue into 2008.
Still, the new low-end tape automation product code named Dreadnaught that landed Overland another OEM deal -- believed to be with Dell -- has been pushed back by three months. (See Overland Preps More Low-End Tape and Overland Grabs New Partner.) It is expected to launch in the channel in June, with no target date given for OEM sales. When he announced the product last November, Calisi said he expected the product to launch in the first quarter of this year.
FalconStor lost $3.6 million or $0.08 per share and its revenue of $9.2 million fell 29.3 percent sequentially while increasing 9.74 percent year over year."Our revenues were lower than expected," CEO ReiJane Huai admitted. He blamed the shortfall on seasonality and delayed deals with customers and said his company will add salespeople, systems engineers and marketing staff. "We remain confident about the fundamentals of our business," he said.
Analyst Steve Berg of Punk Ziegel wrote in a note to clients that FalconStor was hurt by poor sales of its software on virtual tape libraries (VTLs) sold by OEM partners EMC and Sun but recent OEM deals with IBM, Intel, and Huawei 3COM could help it rebound.
Emulex's poor earnings were no surprise. The HBA vendor revealed on April 11 that it expected revenues of about $88 million or $89 million, and it came in at $89.3 million down 13 percent from last year and 19 percent from last quarter. Emulex blamed the shortfall on deferred launches of 4-Gbit/s HBAs from two OEMs, believed to be IBM on the server side and EMC or HP on storage.
— Dave Raffo, Senior Editor, Byte and Switch
Organizations mentioned in this article:
A.G. Edwards
Dell Inc. (Nasdaq: DELL)
EMC Corp. (NYSE: EMC)
Emulex Corp. (NYSE: ELX)
FalconStor Software Inc. (Nasdaq: FALC)
Hewlett-Packard Co. (NYSE: HPQ)
Hitachi Data Systems (HDS)
IBM Corp. (NYSE: IBM)
LSI Logic Corp. (NYSE: LSI)
Overland Storage Inc. (Nasdaq: OVRL)
Punk Ziegel & Co.
Seagate Technology Inc. (NYSE: STX)
Wedbush Morgan Securities
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