MTI Reports Second Quarter Results
ANAHEIM, Calif., Oct. 28 /PRNewswire/ -- MTI Technology Corp.
(Nasdaq: MTIC) today reported net income for the second quarter of fiscal 1999 ended October 3, 1998 of $0.8 million, or 3 cents diluted earnings per share, compared to net income of $4.1 million, or 14 cents diluted earnings per share, in the same quarter of the previous year, and $4.1 million, or 14 cents diluted earnings per share for the immediately preceding quarter. Total revenue for the second quarter rose 3% to $48.0 million, compared to $46.8 million for last year's second quarter, but was down 3% compared to $49.4 million for the first quarter of fiscal 1999. Net product revenue for
the second quarter was $37.3 million, compared to $38.0 million in the second quarter last year, and $39.2 million for the immediately preceding quarter.
Service revenue for the second quarter of $10.6 million represented a 21% increase over the $8.8 million reported in the second quarter of the previous year, and a 4% increase over the $10.2 million reported in the immediately preceding quarter.
The gross profit margin for the second quarter of fiscal 1999 was 30.2%, compared to 35.6% for the same period last year, and 36.2% for the first quarter of fiscal 1999.
Business Trends:
"MTI's financial performance for the second quarter of fiscal 1999
reflected the impact and challenges of the Company's plan to reposition itself during its transition from the U-SCSI to fibre channel markets", said Earl Pearlman, MTI president and chief executive officer. "There are several factors that have contributed to the slow down of the Company's revenue growth rate, particularly in the U.S., over the last two quarters.
"When the Company made the decision to move from the DEC market to the Open Systems market in 1994, it prosecuted this strategy primarily through the acquisition of National Peripherals. National Peripheral's strength, and the coreelement of its product development model, was its success as a highly technical systems integrator. After MTI's acquisition of National Peripherals, the Company retained that systems integration strategy as its primary near- and mid-term product development model, while at the same time initiating the development of our own proprietary RAID controller technology
as part of its longer term strategic plan. Coinciding with the advent of the market shift from SCSI to U-SCSI, the Company released its Gladiator 3000 product line, which was based on an integrated third party controller. The 3000 product family was not only very timely in being released at the beginning of the SCSI to U-SCSI shift, but was highly competitive from a stand point of features, function, and performance. Over the past several quarters, the market has again begun to shift to a new connectivity paradigm: fibre
channel. Although the Company has continued its development of a proprietary RAID controller, its primary initial product offering for the fibre channel market was again based on an integrated product using third party controller technology. While this product strategy had served the Company well in addressing the SCSI and U-SCSI markets, it has not been as successful in allowing MTI to address the fibre channel market. MTI's primary fibre channel product offering, the Gladiator 3600, was released later than originally planned, which impacted not only the Company's fibre channel sales, but sales
of its U-SCSI products as well. In addition, while a very capable and
reliable product, the 3600 does not enjoy the competitive advantages over a broad range of storage application requirements, as did the Gladiator 3200 model. Both the timing and narrower competitive position of the 3600 has resulted in a slow down of the Company's sales momentum, particularly in the U.S.
"Beyond the issues related to the 3600, the Company has seen additional shifts in the competitive landscape that itmust address. Due in large part to the superior performance and feature set of the 3200, the Company has been successful in attracting a certain number of new customers within the Fortune 500. As a result of the Company's initial success in this segment, an increasing amount of sales and marketing resources were focused on customers with similar profiles. This resulted in a shift away from the larger mid-tier market segment comprised of the Fortune 2000. However, as the 3200 has matured, and other storage providers have expanded and extended the features
and functions of their respective product lines, MTI has faced increasing competition within the top tier. A primary example of the changes occurring within the higher end of the storage market has been the development by certain competitors of proprietary software applications that provide increased functionality to the storage system. Although MTI has begun development of several similar applications, the Company's current lack of a fully integrated and robust suite of such add-on products has affected its competitive position, particularly within the high-end segment.
"A recent additional factor that impacted the second quarter, and that will continue to have an impact through at least the current quarter, is the industry's move from 9 gigabyte to 18 gigabyte drives. Although market demand for storage continues to increase, this rapid shift in drive capacity has had a near-term negative effect on total units shipped."
"Our strategy is clear," said Mr. Pearlman. "The company is in a
transition from primarily focusing on products using third party controller technology to focusing its engineering, sales and marketing resources on products using its own proprietary technology. The Company is committed to bring to market as rapidly as possible its own fully fibre channel-based product, the Gladiator 6700. The 6700 will have several unique features and functions which will enhance its competitive position within its target markets. The next generation product, named the Gladiator 7000, will incorporate the previously announced Degas architecture and is currently scheduled for completion during the latter half of calendar 1999.
"The Company also plans to focus its development of value-added software applications. Emphasis will be on the development of a few selected applications, such as remote mirroring, that will be integrated in to the 6000 and 7000 product lines.
"The Company will continue to market the Gladiator 3600, but will
concentrate these efforts to those market segments where the customers' data storage requirements are commensurate with the 3600's capabilities and features.
"In terms of the U-SCSI market, the Company plans to begin shipment by the early part of the fourth quarter of fiscal 1999 of the next generation of its 3000 U-SCSI product line. Named the Gladiator 3500 and based on the Company's new modular architecture, it will provide enhanced performance and improved upgrade options over the very successful Gladiator 3200.
"Beyond the flattening out of its top line, the Company also saw a
material decline in its gross margins in the second quarter," stated Mr. Pearlman. "One of the primary factors that has put downward pressure on the Company's margins is the sale of tape library and related products. In an effort to improve the margin impact from the sales of non-RAID products, the Company will attempt to focus the sales of these products into situations
where they complement the overall storage solution the Company is providing to the customer ......
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