StorageTek CEO Upbeat on IT Spending

The storage provider is rallying on the heels of its strong fourth-quarter results.
Author:
Publish date:

On the strength of its strong fourth-quarter results,

StorageTek

(STK) - Get Report

shares were making modest gains Friday.

In recent trading, the Louisville, Colo., company was up 58 cents, or 2%, to $29.83. The relatively small gain wasn't surprising, since the company

preannounced its upside surprise in mid-January.

In an interview following the company's Thursday evening earnings announcement, CEO Pat Martin added his voice to the growing chorus of technology CEOs who are becoming more confident that technology spending will make a modest rebound this year. "All the

chief investment officers I talk to see their budgets going up -- not going crazy, but definitely up."

Martin endorsed recent optimistic projections by Goldman Sachs and other research firms, and he thinks spending for information technology is likely to increase 3% to 5% this year. A day earlier, Joe Tucci, CEO of storage giant

EMC

(EMC)

, made similar remarks after his company's earnings announcement.

On Thursday, StorageTek announced that it earned a profit of $71.3 million, or 64 cents a share, in the quarter ended Dec. 26, 2003, including a tax benefit of $5.5 million, or 5 cents a diluted share. A year earlier, earnings were $61.1 million, or 57 cents a share, including a 10-cent tax benefit.

Revenue in the fourth quarter was $655 million, up 11% from last year's $590 million. Before the company raised guidance, analysts polled by Thomson First Call were expecting revenue of $603.07 million.

Martin said that storage in particular is benefiting from government regulations requiring businesses to keep more electronic records for longer periods of time. "Email used to get dumped after 90 days. Now I hear insurance companies talking about keeping records for 100 years and airlines for 30," he said. Since StorageTek is strong in tape storage, a good medium for storing high volume of data that does not need to be accessed very frequently, "these developments play right into our strength," he said.

Indeed, revenue from StorageTek's automated tape solutions rose 18% from a year ago, while storage services revenue reached a record $225.8 million in the fourth quarter, Martin said. However, service margins dropped 300 basis points year over year to 41%, a drop the company attributed to the relatively lower productivity of 60 new hires.

Revenue for storage products increased 300 basis points to 50%.

Net income for the full year 2002 was $148.9 million, or $1.35 a diluted share, compared with $110 million, or $1.02 per share the year before. Revenue for the year was $2.18 billion, compared with $2.04 billion in 2002.