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Profit warning stings StorageTek shares

Storage Technology Corp. (NYSE: STK) shares plunged 4 3/16, or 22 percent, to 15 1/4 Wednesday after the maker of high-capacity data storage equipment warned that its third-quarter sales and earnings will fall woefully short of analysts' estimates.

Company officials said it now expects to return a profit of less than 10 cents a share, well below the First Call consensus estimate of 32 cents a share.

Last quarter, StorageTek posted a profit of $27.2 million, or 27 cents a share, on sales of $654.4 million, excluding $102.6 million in charges related to patent litigation and restructuring moves.

The company also said it expects its third-quarter sales to be flat compared to the year-ago quarter when it recorded sales of $571 million.

Company officials said sales of storage disk and mainframe tape back-up products declined from a year ago, while the sales of its storage management software and services and other tape products grew.

"Our preliminary evaluation indicates that while international revenues and profits and corporate operating expenses appear close to expectations, North American revenues and profits appear to be significantly below expectations," said CEO David Weiss in a prepared release.

While Weiss said overall sales growth would be flat, he hinted that sales to StorageTek's increasingly distant partner, International Business Machines Corp (NYSE: IBM) would show a significant drop.

"Revenue growth excluding sales to IBM is anticipated to be in the mid-teens for the third quarter,'' Weiss said.

StorageTek shares surged to a high of 41 5/8 in March before plummeting to a 52-week low of 17 1/4 in April.

Five of the 10 analysts following the stock maintain either a "buy" or "strong buy" recommendation while the other five call it a "hold."

StorageTek will report its third-quarter results on Oct. 28.

Reuters contributed to this report.