Computer storage leaders warn on quarter
By Peter Henderson
SAN FRANCISCO, April 11 (Reuters) - Two leading computer data storage makers EMC Corp.<EMC.N> and Network Appliance Inc.<NTAP.O>, warned on Wednesday that the slowdown was worse than expected in their industry, one of the last holdouts amid a broad downturn in corporate technology spending.
But the firms had differing interpretations for their reduced outlooks. While EMC was cautiously optimistic that shaken corporate customers had regrouped and nailed down budgets for tough times, Network Appliance was concerned that investment was still on hold.
Analysts blamed the downturn in the economy for most of the problem at the companies while pointing to competitive issues as well.
EMC, the No. 1 maker of dedicated storage networks which sit along side traditional computer networks, said its long-stated goal of $12 billion in revenue this year was less likely and that first-quarter earnings would miss Wall Street expectations by 10 percent at 18 cents per share.
The company, which had scaled back its revenue projections in February, said first quarter sales rose 29 percent to $2.35 billion, within the adjusted range, based on preliminary calculations.
Network Appliance, which makes stand-alone storage devices that integrate with normal computer networks, said its sales would fall 20-25 percent from the previous quarter's $288 million, or about $90-100 million off its original projection.
Network Appliance's share fell in after-hours trade to $14.45 on Instinet from a close on Nasdaq of $16.56, while EMC, which warned early in the day, closed off $2.19 at $32.21 on the New York Stock Exchange.
OUTLOOKS MIXED
Storage, seen as a necessity for any growing company, was one of the last technology sectors to slow and many analysts see it as one of the first likely to recover, making the industry a bellwether for broader corporate investment in information technology.
Mike Ruettgers, EMC's executive chairman, gave a relatively optimistic outlook, in the context of the reduced visibility and increased uncertainty that many technology executives have cited recently.
"While the economic situation has elongated EMC's sales cycle for the time being, we believe that widespread corporate re-budgeting for the year is now mostly complete," he said in a statement, projecting EMC would grow at double the rate of information technology spending in 2001, or more than 20 percent.
But Network Appliance's chief executive, Dan Warmenhoven, told Reuters in an interview that he did not agree that companies were ready to spend.
"I think that is putting an optimistic picture on things. In fact I made almost those same comments in the February conference call we had when we announced the results of the January quarter," he said.
Technology officers are cutting budgets repeatedly, he said. "Every time they go back with a new budget, they think they've got things locked down, the CFO or whatever says 'No no no, take it down again.' And we've seen this cycle recur in many, many accounts."
Network Appliance also faces problems of its own, since 25 percent of its customers are tech firms where spending has ground to a halt. Established firms it had targeted for expansion are also not willing to invest now, he said.
COMPANIES WARY
The economic uncertainty definitely makes companies wary, agreed Mark Canepa, the new executive vice president and head of storage at network computer maker Sun Microsystems Inc.<SUNW.O>
"When the whole economy slows down and their own bottom lines and their own revenue streams are under closer scrutiny, obviously things are going to get tougher for everybody," he said in a telephone interview.
He declined to comment specifically on Sun, which reports its earnings next week, but said customers were looking more than ever for exactly the right product.
Wit SoundView Glen Ingalls said the magnitude of Network Appliance's shortfall was surprising, while his colleague at Wit, Gay Helmig, said EMC's miss was "huge".
Ingalls pointed out that Network Appliance was not suffering from pricing, while EMC seemed to be.
"They're blaming the economy, but competition is a much underrated factor," Helmig added. He pointed to Hitachi Data Systems, a unit of Japan's Hitachi Ltd.<6501.T> which says it has been taking business from EMC. "If Hitachi didn't have this strength, EMC would not have this problem," he said.
Warmenhoven said there was a problem for everyone. "I've had customers liken this to the lock-down in the fourth calendar quarter of 1999, just before the Y2K scare," he said. "Things just stopped." >>
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