Exabyte, StorageTek Hurting

The magnetic-tape storage market is expected to double in the next few years, according to one analyst firm, but tape vendors Storage Technology Corp. and Exabyte Corp. aren't reaping the financial rewards. In fact, both lost money in the recent quarter.

Both companies are sound and have good technology, analysts said, but they have missed the boat for different reasons. Both claim to have strategies in place to get back on board.

According to International Data Corp. in Framingham, Massachusetts, the tape industry will grow from $2.1 billion in potential original equipment manufacturer sales last year to $4.6 billion by 2004.

That's due largely to storage needs fueled by e-commerce applications and data.

Tape is one medium that companies use to back up their data; disk is the other.

EMC Corp. in Hopkinton, Massachusetts, is the leader in the disk space.

The tape space is more fragmented, with pieces belonging to IBM and Hewlett-Packard Co., as well as StorageTek, Exabyte and other niche vendors.

Louisville, Colorado-based StorageTek has been troubled for a while. It announced layoffs of 1,300 employees after incurring higher losses than expected last year. Analysts said the financial problems stem from the company's lack of focus and the fact that it overextended itself, delving into the storage service business, for example.

"It's a disturbing trend for [StorageTek], in a storage market that's burgeoning," said John Webster, an analyst at Illuminata Inc. in Nashua, New Hampshire. The most recent quarter, ended March 31, was no exception: Sales slipped 11.2 percent to $460 million from the same quarter last year. That resulted in a $39.5 million loss compared with a $5.8 million profit for the same period last year.

Boulder, Colorado-based Exabyte has also had financial woes: Last month, it reported $49.5 million in sales for the first quarter, or 26 percent less than the same quarter a year ago. It posted a $13.5 million loss; the year before, it had a $3.5 million loss for that period.

Analysts said Exabyte's woes can be attributed to a four-year product lag that put competitor Quantum Corp. in Milpitas, California, ahead. However, last December, Exabyte finally rolled out M2, its answer to Quantum's digital linear tape.

Both companies' executives concede that missteps occurred but said they're confident new products and refocused strategies will turn their financial fortunes around. StorageTek is banking on its open storage-area network (SAN) strategy with its line of StorageNet SAN components, while Exabyte now has M2.

One user said he is content to stay with StorageTek as long as the company continues to support its products. In any case, Rich Ward, systems manager at Keystone Mercy Health Plan in Philadelphia, said he'll stay with tape rather than go to disk.

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