StorageTek to cut up to 1,750 jobs as profits dive

Despite an earlier warning that profits would be down, Storage Technology yesterday reported lower-than-expected earnings of 5 cents per share for its third quarter. The network storage company also revealed plans to cut up to 1,750 jobs as part of a broad restructuring plan designed to save $US150 million.

StorageTek, as the company is better known, cautioned Wall Street earlier this month that its expectations for the company to profit by 30 cents to 33 cents per share were too high. Analysts had lowered those estimates to 8 cents per share today, according to a consensus estimate gathered by First Call Corp., which StorageTek missed by 3 cents.

The company earned 48 cents per share in the same period a year ago.

"While StorageTek's technology, products and services are winning the critical acclaim and respect of customers worldwide, we have not been able to translate this to the bottom line and into value for our shareholders," David Weiss, StorageTek's chairman, president and chief executive officer said in a statement.

"Performance in the third quarter was affected by revenue growth that was below our expectations as well as disappointing margins in our consulting and integration services businesses," Weiss said.

The company's results were also affected by customers delaying purchases because of year-2000-related testing issues, he said.

Revenue for the quarter, which ended September 24, was $573.7 million, more or less flat with $571.1 million in the third quarter of 1998. Income was $4.7 million, down from $50.6 million a year ago, the company said.

The income and earnings figures exclude a pretax charge of $32.4 million related to litigation expenses and a voluntary separation program for its employees. Including that nonrecurring expense, the company reported a loss for the quarter of $16 million, or 16 cents per share.

The company's board of directors has approved a restructuring plan to concentrate its business on automated tape, virtual storage and storage area network products. The first phase of the plan is due for completion by the end of the second quarter 2000, and should lead to annual savings of up to $150 million, the company said.

"We are focusing our resources on the businesses where we have done well and see the best opportunity for profitable growth," Weiss said in the statement.

StorageTek will cut back investments in its "solutions business group," which includes consulting and integration services, managed storage services and vertical and horizontal application solutions. The firm said it will fulfill commitments to existing customers, but look for new business only in the SAN and virtual storage businesses, where consulting plays a key role, the company said.

StorageTek will also simplify its sales model, reduce duplication across operating groups and bring expenses into line with the amount of business it expects to do.

The company also said it is working with investment banking firm Goldman, Sachs & Co. to explore "strategic alternatives" for the company and its businesses, although it didn't elaborate on what those alternatives might include.

"This restructuring is a necessary and appropriate first step to optimise the options we are pursuing with Goldman Sachs," Weiss said in the statement.

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