From Reuters:
cbs.marketwatch.com
StorageNetworks faces rough road, new competition
7/17/2001 2:51:00 PM
By Tim McLaughlin
BOSTON, July 17 (Reuters) - StorageNetworks Inc., a small firm whose gold-plated backing and EMC Corp. (EMC) pedigree once launched its
stock into orbit, faces a rough second half as the data-storage industry reels under plummeting profits and new competitive challenges.
A year ago shares of StorageNetworks (STOR) shot up to $115 as it spent freely to build a network of data centers that rented storage space
to companies.
Now, despite its management team of former EMC executives, StorageNetworks' stock traded at $9.02 on Tuesday afternoon, down more
than 90 percent during the past year, erasing about $9 billion in shareholder value.
Chief Executive Peter Bell is a former EMC executive and two of its largest individual shareholders include EMC co-founder Roger Marino and
Harold Dixon, a former top sales executive at EMC.
The sector's troubles have also hit EMC itself, whose shares have slipped 27 percent in the past month to a little over $20, far off their 52-week
high of $104.93.
Investors are waiting to see how much StorageNetworks trims its revenue outlook when it reports second-quarter results on Thursday. During
the past few months, one of the firm's largest institutional shareholders, Goldman Sachs Group Inc. (GS) , has dumped 2.5 million of the 11.1
million shares it held in the company, according to U.S. Securities and Exchange Commission filings.
If that doesn't make investors jittery, Forrester Research analyst Joe Butt said the data-storage industry is facing pressure from giant
consulting firms such as Electronic Data Systems Corp. (EDS) that are increasingly acting as middlemen between corporations and sellers of
storage.
The emergence of large strategy consultants in the storage industry threatens to exacerbate already cutthroat price competition with
potentially devastating consequences in an industry used to sky-high margins. Industry leader EMC Corp., for example, has slashed its
outlook twice in four months after enjoying a decade-long boom.
"Selling directly to the (corporation) is much tougher," Butt said. "There's more people between them and the eventual client. (Storage firms)
are playing second fiddle to the strategy guys."
These trends spell trouble for StorageNetworks and the rest of an industry grown accustomed to heady profit margins.
Dain Rauscher Wessels analyst Cynthia Houlton said she does not expect StorageNetworks to post positive cash earnings until the fourth
quarter of 2002, according to a recent research note to investors.
Besides experience, Houlton said the company has enough money to reach profitability, about $375 million at the end of the first quarter.
She also last week downgraded the firm's stock to neutral and cut her 2001 revenue estimate by 10 percent to $138.5 million. She cut the
firm's 2002 revenue outlook by about 21 percent.
REUTERS
Rtr 14:51 07-17-01 |
