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Data General's upside surprise

The company ends a rocky fiscal year with a fourth quarter profit--analysts had expected another loss.

Fiscal year 1998 was mostly a sad financial story for Data General--but the book had a rosy ending, as the company pulled out a profitable fourth quarter when analysts expected a loss.

The high-end server and computer storage company closed its fiscal year with a net loss of $152 million, or $3.11 per diluted share, including a $135 million charge, or $2.76 per diluted share, to pay for a worldwide restructuring in June. That's a big step down from fiscal year 1997, when the company reported net income of $56 million, or $1.26 per diluted share.

But the company had a profitable fourth quarter, reporting a net income of $3.7 million, or 7 cents a diluted share. This was less than the same quarter in 1997, when the company had a net income of $17 million, or 35 cents a share. Wall Street analysts, however, expected a fourth quarter loss of 4 cents per chare, according to First Call.

The company's shares leapt up 24 percent today after the announcement, increasing 3.0625 over the 14.5 opening to close at 16.0625. Data General stocks hit rock bottom in September, when shares hit a 52-week low of 7.

Data General's layoffs and restructuring are expected to yield savings of $40 million to $45 million a year, Data General said.

A big piece of Data General's future rests in its Clariion division, which sells storage products such as arrays of hard disks. While Data General overall lost 400 personnel during the restructuring announced in June, the Clariion division actually grew by 100.

One of the key planks of Clariion's strategy is selling "storage area networks," centralized hard disk systems that reside on their own network, separate from a company's main information backbone. Clariion has bet that Fibre Channel will be the technology of choice for hooking up all those hard disks, and a recent study indicates that Clariion made the right choice, predicting Fibre Channel will grow to a $15 billion business by 2002.

Indeed, Data General says its Fibre Channel sales grew 86 percent since the fourth quarter of fiscal year 1997 and now make up to 40 percent of its current storage business.