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StorageTek goes from bad to worse

StorageTek (NYSE: STK) missed lowered estimates again. The network storage company said it will cut 1,500 to 1,750 jobs, giving it an annual savings of $150 million. Storage Tek announced the restructuring as it reported third quarter earnings of $4.7 million, or 5 cents a share, missing First Call's prediction of 8 cents a share

Officials had lowered the bar for itself by warning it would return a profit of less than 10 cents a share, well below First Call's original consensus estimate of 32 cents a share. Slow revenue, attributed to "customers delaying purchase decisions because of their Y2K testing issues," was cited as the cause for the company's miss.

Shares closed at 14 5/8 Wednesday, after a steep decline from their 52-week high of 41 5/8. A profit warning singed shares earlier in October, after they were already fried following a second quarter, and a first quarter earnings miss.

StorageTek's earnings for the quarter ended Sept. 24, compare to $50.6 million, or 48 cents a share for last year's third quarter. Revenue was $573.7 million, flat with last year's third quarter revenue of $571.1 million. The company lost $16 million, or 16 cents a share, including pretax charges of $32.4 million relating to litigation expense and an employee voluntary separation program.

The restructuring program is intended to enhance operating performance and reduce operating expenses through recommitment to tape automation, virtual storage and storage area networks, simplification of the company's sales model, and reorganization of its infrastructure.

"While StorageTek's technology, products and services are winning the critical acclaim and respect of customers worldwide, we have not been able to translate this to the bottom line and into value for our shareholders," said David E. Weiss, StorageTek's chairman, president and chief executive officer in a company statement.

Weiss added that he expects Y2K issues will to "continue to be felt more in our mainframe market rather than in our growing client-server business into the first quarter of 2000, consistent with the expectations of others in the industry."

Revenue declined in the company's storage products, and disk segments, especially with the declining sales to IBM. Networking and other revenue increased from the third quarter of 1998 with an increased contribution of storage area network infrastructure products.