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StorageNetworks tops estimates, cuts jobs

The company beats analyst expectations by a penny with a loss of 33 cents per share but says it's laying off a third of its staff.

Stephen Shankland Former Principal Writer
Stephen Shankland worked at CNET from 1998 to 2024 and wrote about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
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Stephen Shankland
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StorageNetworks, which manages data-storage equipment for its clients, beat analyst expectations by a penny with a loss of 33 cents per share, but the company said it's laying off a third of its staff.

The company reported revenue of $33.4 million for the second quarter--ended June 30--a 318 percent increase over the $8 million in revenue from the year-ago quarter. A loss of $32.2 million, or 33 cents per share, edged 1 cent above the 34 cent loss expected by analysts surveyed by First Call.

But the Waltham, Mass., company lowered its projected revenue for the remainder of 2001 because of slowing sales, and to compensate, StorageNetworks is laying off 220 employees, about a third of its staff. About 450 employees will remain.

The move, combined with the $35 million in financing and $350 million in cash, means the company has enough funds for operations to become profitable, Chief Financial Officer Paul Flanagan said in a statement.

StorageNetworks' performance last quarter delighted analysts, but the storage market is being hit by the downturn in computer spending. With the company's soaring initial public offering in June 2000 and 52-week stock price peak of $154.25, a giddy mood prevailed. But more sober times have set in, with even storage giant EMC undergoing financial suffering.

In midday trading Thursday, the company's stock rose 46 cents, or 7 percent, to $6.84.

Solomon Smith Barney analyst Stephen Mahedy reduced his revenue estimates for 2001 from $140 million to $115 million--deeper than StorageNetworks' revised guidance of $120 million to $127 million. He warned in a note Thursday that the company may have to lower prices "as larger competitors intensify their interest in storage services."

New customers in the quarter included Cisco Systems, Enron, Saks Fifth Avenue's Saksdirect Internet site, American Greetings and MarthaStewart.com.