Updated from 12:50 p.m. EST
dropped 17% Thursday after it warned of fourth-quarter losses, and said it will shrink its workforce and purge top managers, including its chief executive.
In a statement Thursday, Storagetek said chairman, president and chief executive officer David Weiss offered his resignation after the company announced it expected an operating loss of 10 cents a share for its fourth quarter, to shed 600 more employees and send some senior managers packing. Weiss will hold the office until a successor is named.
Storagetek, which was down 2 11/16 to 13, provides network storage to help its customers collect and store digital content on computers and servers. (It closed down 2 3/4, or 17.5%, at 12 15/16.)
"I wasn't surprised at the announcement but I wasn't expecting this until May," said Gary Helmig, an analyst at
who has carried a hold rating on the stock for a year. "I thought the quarter was doing better than they actually did." Helmig was expecting 2 cents, while the consensus from
First Call/Thomson Financial
was 5 cents. His firm has done no underwriting for Storagetek.
The Louisville, Colo.-based company said higher bonuses and commissions combined with lower profit margins and an industry slowdown in spending on new equipment contributed to the latest of a series of disappointing quarters.
Under the ongoing restructuring, the company will fold six operating businesses into two, and said it would cut more employees in the first quarter of 2000 after casting off 600 positions in the fourth quarter.
"We have determined that the strategic alternative that best builds shareholder value under current market conditions is to operate as a more efficient, more flexible, more focused independent company," said Weiss.
Helmig said he expects 2000 revenue growth of only a couple of percentage points, and Storagetek won't "be very exciting, as a cost-cutting story, until they get stronger revenues." He added that the company didn't provide any guidance about 2000 revenues in a conference call with analysts and investors Thursday. "It's almost as if they don't know where it's going," Helmig said.
The company said it relied upon advice from investment advisor
in exploring "strategic alternatives."
Storagetek said it will shift from a direct-sales model to one primarily focussed on its transformation. It is also exploring new markets in the U.S. and Canada to grow sales.
Storagetek, which has fallen two-thirds of its market value in 12 months, will report quarterly and year-end results during the week of Feb. 7.
Storagetek's stock fall Thursday was magnified by speculative bottom-pickers caught unaware, according to Helmig. "The book value is a little over $9 so there's not much downside, but not much up from here either," said Helmig. Book value is total assets less liabilities. "Some people had thought they would buy it down here and Storagetek would get bought so they'd make a killing. But they announced that they intend to be independent."