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ComputerWire logo Storage Technology Corp has joined EMC Corp and McData Corp in announcing preliminary fourth quarter results that are significantly better than expected, marking another indication that the fourth quarter may turn out to have been better than expected across the storage sector.

StorageTek said that for the three months ended December 31 2002 it will post net income of more than $0.45 per share, up considerably on previous guidance of $0.36 per share or the GAAP earnings of $0.38 per share reported for the same period last year. Revenue will be around $584m, up 25% sequentially, and 3% year-on-year. Analysts had expected only a 10% sequential revenue growth.

Earlier this week EMC announced preliminary results showing a 14% sequential revenue increase, well ahead of prior guidance of flat revenue, and analysts' expectations. EMC also announced net income of up to $0.02 per share - the first quarterly profit the company has made since the second quarter of 2001.

McData's fourth quarter preliminary results announced on the same day as those from EMC showed a sequential revenue increase of 31%, compared to previous guidance of just 4% to 6% growth. Net income at the storage networking supplier will be between $0.06 to $0.08 per share, compared to an earlier forecast of breakeven to $0.01.

Not all suppliers will have enjoyed the same fourth quarter party as these three, but many may have. As an OEM reseller of large volumes of other supplier's hardware, when EMC has a good quarter, others are likely to as well. Although the fourth quarter is the strongest quarter of the year, the results issued so far have caught analysts unaware.

Only hours before McData and EMC issued their preliminary results, merchant bank Salomon Smith Barney said that it expects most storage companies to post fourth quarter results at the high-end or even or above previous guidance. It said that demand for storage products was "robust" in October and continued strongly into early November, before softening around the end of that month and then recovering in the last two weeks of December to give a strong finish to the quarter. SSB said EMC has built a "fair amount of [sales] backlog for the March quarter," and that McData has built a "healthy" backlog.

Merchant Bank Merrill Lynch, which had expected EMC to post only flat revenue, pointed out that giant disk drive component supplier Hutchinson Technology Inc has also issued preliminary results showing revenue at the top end of previous guidance. The drive maker said that it does not expect demand to drop in the first quarter of this year, and that the outlook has recently improved for the second half of its fiscal year, ending in September.

Despite that, Merrill was cautious about the prospects of an upturn for the storage sector, let alone for the IT sector as a whole. "Our surveys consistently put storage at the top of the priority heap, so maybe it's unique to storage. EMC had a particularly poor 3Q with substantial share loss, so there likely was some catch-up effect. Also, analysts may have underestimated 4Q seasonality," it said.

© ComputerWire

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