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Earnings roundup: Quantum falls short, Komag keeps bleeding

Quantum Corp. (Nasdaq: QNTM) became the latest storage-related hardware company to report disappointing results.

In fiscal first quarter results released after market close Thursday, the maker of hard disk and tape drives posted net income of $8.3 million, or 5 cents a share, the low end of the range the company had predicted in a warning last month. First Call's survey of 12 analysts had predicted a profit of 10 cents a share.

First quarter sales remained flat year-over-year at $1.1 billion. Quantum earned $3 million, or 2 cents a share, in the comparable period last year.

Price wars and overcapacity have plagued the hard disk drive industry in recent quarters. Quantum's hard drive sales dropped to $752 million on 6.6 million units shipped, compared to $847 million on 5.6 million units a year ago. "During fiscal Q1, price declines were extremely aggressive in the desktop segment of the hard disk drive market," said John Gannon, president of Quantum's hard disk drive group. "While Quantum voluntarily reduced its desktop drive build plan and shipments into the channel, price competition in this segment had a severe impact on our revenue and net income in this business."

Quantum's bottom line fell well short of reduced analyst estimates. The company in early June said it expected to earn between 5 and 15 cents per share.

The tape drive business did well. Quantum's DLT and Storage Systems Group boosted net income by 30 percent year-over-year, to $51 million from $44 million. Sales increased 29 percent over the same period, to $331 million from $256 million.

Quantum sold $67 million of storage systems in the first quarter.

Other companies reporting quarterly results:

  • Komag Inc.
  • (Nasdaq: KMAG)

    Second results for the manufacturer of thin-film media for disk drives included millions in losses, but not quite as much as Wall Street expected.

    The company posted a net loss of $26.9 million, or 42 cents a share, not including charges for amortization and restructuring. Including $7 million in goodwill amortization, and $4.3 million to pay for 400 job cuts, Komag lost $38.2 million, or 60 cents a share. Regardless of whether writedowns and one-time events are counted, the loss was considerably less than the 71 cents per share deficit predicted by First Call's survey of four analysts.

    Komag had previously warned that it would lose more than the 40 cents per share lost in the first quarter.

    Disk shipments rose 10 percent during the second quarter, but Komag had originally hoped for unit growth of at least 20 percent and as much as 35 percent. At the same time, the disk drive industry's continuing overcapacity forced prices down 6 percent.

    Because of the industry's continuing hard times, Komag will record a one-time charge in the third quarter to pay for 500 jobs cuts, on top of the 400 layoffs already carried out. Over the last three months, the company has laid off 46 percent of its U.S. work force. The company employs 2,750 people in Malaysia.

    "The departure of such a significant portion of our dedicated U.S. employees saddens us immensely but this work force reduction is the unfortunate consequence of extremely difficult industry conditions," said Stephen C. Johnson, president and CEO. "Due to our revised expectations for slower growth in unit volumes we will be able to shift production to our offshore facilities faster than previously planned. By leveraging the distinct cost advantages of our Malaysian facilities we will improve our cost structure and our ability to respond to the continuing price pressures in our industry."

    Reductions in accounts receivable and inventories will partly offset the costs of restructuring, Johnson said. Komag executives expect to return to positive cash flow in the fourth quarter, when the company also expects to "dramatically" cut its losses.

  • Avid Technology Inc.
  • The maker of digital editing tools posted second quarter earnings of $2.7 million, or 10 cents a share, not including acquisition-related writedowns. First Call's survey of five analysts predicted a profit of 22 cents a share.

    Second quarter revenue rose 3 percent year-over-year to $116.4 million. Gross margin fell to 56.8 percent from 60.1 percent in the first three months of the year.

    "The sequential decline in gross margin reflects increased sales of NT-based Media Composer and Avid Xpress products, which are generally shipped as fully configured systems and carry lower margins," said William J. Miller, chairman and CEO. "We were more aggressive with our pricing during the quarter, particularly with the Avid Xpress price reductions announced in June. The second quarter margin also reflected increased sales of upgrades which carry lower margins, as well as the adverse foreign currency impact."

    The company bought back 1.2 million shares during the quarter for $19 million.

  • Electronic Arts Inc.
  • (Nasdaq: ERTS)

    Strong sales of PC games drove the entertainment software company's second quarter bottom line well past analyst forecasts.

    Net income of $2.3 million, or 4 cents a share, surpassed the break-even figure predicted by First Call's survey of 13 analysts. Second quarter sales increased 4 percent year-over-year to $186.1 million, from $178.2 million a year ago.

    EA executives pointed to strong sales of PC games, especially SimCity 3000 and Sid Meier's Alpha Centauri.

    North American sales surged 46 percent from the comparable period a year ago. That made up for the expected 22 percent loss in overseas business, which last year was boosted by the release of World Cup ྞ soccer games on three platforms.

  • Diamond Multimedia Inc. (Nasdaq: DIMD)
  • In what is expected to be its next-to-last quarter as an independent company, the maker of graphics cards, digital music players and Internet access products came in with a bottom line much lower than expected.

    San Jose, Calif.-based Diamond saw second quarter losses of $10.8 million or $5.4 million -- equivalent to 30 cents and 15 cents per share, respectively -- depending on whether losses related to the newly formed RioPort are included. First Call's survey of five analysts had predicted a profit of 3 cents per share.

    Second quarter sales fell 25 percent year-over-year to $128.7 million from $172.3 million, as Diamond prepared for its pending acquisition by S3 Inc. Diamond took pains to clear out old products, especially graphics cards based on 3Dfx and 3Dlabs chipsets. "This resulted in revenue with very low or no gross margin, as well as scrap charges on certain inventory items," said James M. Walker, senior vice president and CFO of Diamond. "Consequently, core graphics and professional graphics were each reduced to about breakeven for the quarter."

    At the same time, Diamond boosted spending on home networking products and on the RioPort unit, which the company plans to break out as an operating subsidiary.

    "We increased spending in our RioPort division during the quarter to aggressively pursue an early-mover opportunity available to us in the market for digital music over the Internet," said William J. Schroeder, president and CEO. "Because this is a time-perishable opportunity, we felt we needed to fund it to the maximum extent we could afford."

    S3's purchase of Diamond is expected to close in October.

  • Clarify Inc.
  • (Nasdaq: CLFY)

    A 75 percent boost in sales carried the front-office software vendor a penny ahead of analyst forecasts.

    Second quarter earnings of $3.4 million, or 14 cents a share, came on revenue of $52.3 million. Last year Clarify earned $1.1 million, or 5 cents a share, on revenue of $29.8 million.

    License revenues increased 46 percent year-over-year and 18 percent sequentially. European sales were especially strong, said Tony Zingale, Clarify's president and CEO. The company is seeing more of its overall business coming from system integrator partners, Zingale said. "One of Clarify's key strategic initiatives for 1999 and beyond is to continue to accelerate these partnership programs," he said.>