SGI, StorageTek Hit with Earnings Bug

Storage Technology Corp. and Silicon Graphics Inc. Monday became the latest technology vendors to warn about anticipated earnings shortfalls in the quarter that ended last month.

StorageTek's third-quarter sales will come in lower than expected at $465 million to $480 million, according to a statement issued by the storage vendor. The company said it still should be profitable for the quarter, excluding some planned restructuring charges. Wall Street expected the company to report 14 cents per share in profits, excluding items, according to analysts surveyed by First Call/Thomson Financial.

Final third-quarter results will be released Oct. 26.

The earnings shortfall was due to a parts availability problem for StorageTek's 9840 tape drive, specifically the inability of long-term vendors to ship flex circuits and transducer semiconductor components for the 9840 as expected, StorageTek said. The problem was solved during this quarter, and StorageTek returned to shipping the equipment last month. The backlog orders are expected to be fulfilled by the end of the month.

"It's important to note that our basic business is sound, demand is good, margins are healthy and our financial condition is solid," said Patrick Martin, the company's chairman, president and CEO, in the statement. He said the fourth quarter will be affected by the delayed sales from the 9840 and associated equipment.

Shebly Seyrafi, an analyst at A.G. Edwards & Sons Inc. in St. Louis, said StorageTek's earnings were also affected by disk sales taking business away from tape sales. They were also affected by midlevel tapes, sold by Quantum Corp., Hewlett-Packard Co. and IBM Corp., that are scaling up to the enterprise level, where StorageTek sells.

"It's unclear if StorageTek is on the right track," but if Martin adds shareholder value and StorageTek focuses on its core tape market, it will right itself, Seyrafi said. He speculated that StorageTek will either exit or downscale in some areas, such as its disk or networking business.

StorageTek was trading at $10.38 this morning, down from yesterday's closing price of $12.25.

Meanwhile, Silicon Graphics Inc. projected a wider-than-expected loss for its first fiscal quarter and announced a new model to return to an operating profit.

The Mountain View, Calif.-based high-end graphic systems maker warned it will report a per-share loss of 28 cents to 30 cents for the first quarter ended Sept. 30, including a gain on the sale of selected assets and other income of approximately $50 million. Analysts surveyed by First Call/Thomas Financial expected SGI to report a loss of 14 cents per share.

SGI said revenue is expected to total about $420 million for the first quarter. The company added that it plans to sell selected assets during the remainder of the 2001 fiscal year, generating approximately $400 million to $450 million in cash and a gain of $200 million to $250 million.

Additionally, SGI's board of directors approved a stock-buyback program of up to 50 million shares of the company's outstanding common stock.

SGI's financial restructuring plan will be led by Hal Covert, the company's new executive vice president and chief financial officer. He joined the company July 26 and was formerly CFO at Adobe Systems Inc.

SGI's stock was trading at $3.63 this morning, slightly down from yesterday's close of $3.81.

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