StorageTek looks beyond tape to boost fortunes

Martin announced a goal of increasing revenue 50 percent and multiplying profits by a factor of 8 to 10 in the next three years. And unlike some of the company's past recovery efforts, this one is based on an unglamorous but solid product: magnetic tape storage equipment.

But Martin, who took over in July, recognizes the magnitude of the effort before him. One challenge is simply convincing employees that recovery is possible. "They've been through so many disappointments, I have to get them to believe we're going to get it right," he said in an interview.

The company has seen its stock fall from more than $50 in 1998 and more than $100 in the 1980s as various deals and products came and went. The most recent major setback for StorageTek was the Justice Department intervention that put an end to IBM sales of a StorageTek disk product, Illuminata analyst John Webster said.

While StorageTek has been pummeled, competing storage hardware specialists such as EMC and Network Appliance have been booming.

But the boom in storage will include tape equipment as well as the faster disk-based systems that EMC and NetApp sell. "I believe that tape is benefiting from the burgeoning amounts of data out there being created," Webster said. "There's always going to be a place for archival media."

Others were more guarded, however. "We continue to believe that StorageTek is a show-me stock until it can display multiple quarters of positive financial progress along with positive proof that its strategic initiatives are taking hold," Salomon Smith Barney analyst John Dean said in a report.

For Webster, StorageTek's three-year plan depends on reclaiming money that until now has slipped through its fingers.

"In some ways the projections are conservative," Webster said. "I think StorageTek has been bleeding revenue in various little places for the past couple of years. If they can stop some of those revenue leaks, then I think the profitability projections are quite possible."

Specifically, StorageTek has suffered from basic slipups such as not getting invoices out on time or even at all, Webster said. And some business processes were needlessly cumbersome.

"The tape business now is a preponderance of our business--55 percent," Martin said in an interview. "We plan to grow that in double digits in the next couple of years."

In the tape market, the company's new L series of tape libraries will help the company push into new territory, notably the Windows server market, said Gary Francis, vice president of corporate strategy.

But tape isn't everything. The company also has entered the market for storage area networks, a notoriously complicated and expensive technology that offers fast, manageable and reliable data storage. The company's StorageNet 6000 helps route data traffic appropriately across SANs.

The SN6000 can deal with tape systems now and will be upgraded to handle disk storage systems in the first half of 2001, Francis said. In the first half of 2002, the upgrade will allow customers to set up policies that will automatically move data among different storage devices--for example, from a high-speed disk system to a slow-speed tape archive.

The storage network product will account for about 11 percent to 12 percent of the company's revenue in the future, Patrick said.

Analysts believe the storage networking product has potential, but Webster says there's more to making it a successful product than just good engineering. "I'm not sure they fully understand the potential of that product," he said.

Deviations from the tape market have been tough for the company. "The disk business has not been kind to StorageTek," Webster said. In the early 1980s, a StorageTek competitor to an IBM disk product had reliability problems. Its successor suffered from several delays.

"Tape has been their saving grace, their anchor in the marketplace," Webster said.