StorageTek ups 2004 profit outlook

SAN FRANCISCO: Data storage company Storage Technology Corp. posted higher quarterly profits and raised its 2004 profit outlook due to a lower tax rate.

Chief Executive Pat Martin, in a conference with analysts, said it expected net income of $178 million to $190 million in 2004, compared with its forecast in January of $165 million and $175 million, respectively.

StorageTek, as it is known, said its effective tax rate for the first quarter was about 22 percent and said it now expects that same rate for full-year 2004 compared with a previous estimate of 28 percent.

The lower tax costs were associated with StorageTek's manufacturing operations in Puerto Rico though Martin did not elaborate. A company representative was not immediately available for comment.

The company, however, stuck with previous 2004 revenue growth projections in the "mid-single digits" from 2003 revenue of $2.18 billion.

It also said some customers may wait on new product purchases until StorageTek releases a new product line that could be launched this summer.

Some analysts said weaker first quarter product sales - part of which stems from the seasonality of StorageTek's products - were also likely to weigh on demand for its services which involve helping customers integrate new products into their own businesses.

StorageTek says the first quarter has traditionally generated the least revenue due to a tendency of customers to make purchase decisions at the end of the calendar year in the fourth quarter - which it says has historically produced the most revenue.

StorageTek, of Louisville, Colorado, near Boulder, said it also looked for technology spending growth "more in the 3 (percent) range," at the bottom end of a 3-5 percent growth outlook in January.

StorageTek's IT spending outlook is still inline with a growing chorus of companies looking for increased IT spending this year as businesses replace aging PCs and servers, and expand storage networks to accommodate the rising amount of data companies must keep on hand.

Underscoring its IT spending outlook, StorageTek said it added 140 workers in the first quarter in its sales and services division in order to have employees trained and ready for the increased economic activity it expects in the second half of 2004.

StorageTek reported net earnings for the first quarter of $23.3 million, or 21 cents a share, compared with net income of $16.5 million, or 15 cents a share, a year earlier.

StorageTek reported revenue of $515 million, up from $480 million a year ago.

Analysts on average were expecting earnings per share of 21 cents, within a range of 19 cents and 23 cents, and revenue of $518.36 million, according to Reuters Research, a unit of Reuters Group Plc.

The company said its storage services revenue grew 11 percent in the first quarter over the same period last year.

"Services came in strong but products came in a little below our expectations," said Kaushik Roy, an analyst at Susquehanna Financial Group.

The lower products numbers were likely due to the seasonality of StorageTek's product sales, said Roy, who does not own any stock in StorageTek. His company does not have a banking relationship with StorageTek.

"Customers might also be holding off buying products until it comes out with its higher end products," he said, adding he did not see the slightly lower product numbers as a "weakness."

StorageTek confirmed that it had started a stock repurchase program approved by its Board of Directors that involves buying up to 1 million shares of common stock per quarter through 2005.

The repurchase program is aimed at offsetting dilution created by shares issued under employee stock plans. The company plans to fund the repurchases through cash flows from operations.

Shares of StorageTek, which published after the close of regular U.S. trading, were lower in after-hours trade. Shares last traded at $26.78 at 4.19 p.m. Eastern on the INET electronic brokerage system. StorageTek shares closed Tuesday at $27.69, up 48 cents, on the New York Stock Exchange.

© Reuters