A growing consensus that the first quarter won't mark a turnaround for the data storage sector had a bunch of leading names under pressure Thursday.

"The feeling is, by some analysts, that things aren't going that well, and that sales may disappoint in the current quarter," said David Memmott, head of listed trading at Morgan Stanley.

Earlier this week, Lehman Brothers said that conversations with industry contacts indicate the number of big deals for enterprise storage has "fallen off meaningfully" from the fourth quarter.

"Our sources indicate that the number of large corporate deals that the major systems vendors have been bidding on have been few and far between year to date," Harry Blount, the analyst, said in the note.

EMC ( EMC) was recently down 3.5% to $10.95, after hitting a 52-week low of $10 earlier. Since the beginning of the year, the stock is off 18%, mirroring a slide in the data storage sector.

According to Lehman Brothers, the current guidance from the preponderance of storage companies and those with large storage units suggest sequentially down or slower growing in the current quarter. The perception of deterioration in the quarter, traders said, is what continues to keep the group under pressure.

For the first quarter, EMC has said that revenue would be down 5% sequentially at best. The company's also said results could be worse if customers demonstrate caution in their spending patterns. The consensus estimate calls for earnings of 3 cents a share, on revenue of $1.4 billion.

After Sept. 11, the storage sector ran up sharply, as investors speculated it would benefit strongly from an economic recovery. From a September low, EMC was up 34% at the beginning of 2002.

But demand in the sector remains slack. Since the beginning of the year, Brocade ( BRCD) is off 33%, McData ( MCDTA) has dropped 37%, and Network Appliance ( NTAP) is lower by 26%.

"The sector probably got a little bit ahead of itself," said Brent Bracelin, an analyst at Pacific Crest Securities. "There's still uncertainty about the ability to ramp up growth in the second half of the year."

Lehman expects sequential comparisons in the current quarter to be rather difficult, in the wake of a stronger December quarter -- which it attributes to September deferrals and normal seasonality.

Still, Lehman is optimistic that when the business conditions pick up, the pursestrings will loosen. "We would likely become more positive on the sector once expectations become more reasonable."

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