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SyQuest stock up on sales reports

The hard drive maker expects a comeback for the quarter, starting with new-customer sales. Investors respond by driving up the share price nearly 50 percent.

Plagued with continued losses and dropping revenue in recent quarters, SyQuest Technology (SYQT) said today it expects to make a comeback, predicting new-customer sales will bolster its fiscal third quarter.

The news sent the removable cartridge hard drive maker's stock price soaring nearly 50 percent in morning trading; it ended the day ahead 35.6 percent at 2-1/2, up 21/32 over yesterday.

SyQuest expects to post sequentially higher financial results, as well as year-to-year improvement, when it releases figures for its third quarter in July. SyQuest did not release an anticipated revenue range.

SyQuest's announcement comes as the company battles back for market share. It lost its lead position to portable storage maker Iomega (IOM). SyQuest installed a new management team last year and redesigned its portable drives to give it a sleeker appearance to compete with Iomega's drives.

In the previous quarter, SyQuest shrunk its net loss while revenues plunged 65 percent because of a decline in sales of older products and lower-than-expected shipments of the latest version of its SyJet portable storage drive.

The company reported a net loss was $33.7 million, or $1.31 per share, for the second fiscal quarter ending March 31, while revenues plummeted to $16.8 million.

And in the year-ago period, SyQuest posted a loss of $41.3 million, or $3.61 a share, on revenues of $29.5 million.

Despite Wall Street's response to the news, Howard Rosencrans, an analyst with H.D. Brous & Company, said a move in the stock is premature.

"I don't know if they are fully out of the woods yet. They will lose money in the June quarter, with more losses in September, and I question if they will make money in December. This is a big uphill battle. My hat is off to management that they have the company moving in the right direction, but the jury is still out on whether or not this company will become profitable," he said.

Rosencrans added that an improvement over last quarter is not much of a feat, considering the amount of losses the company has had.

But SyQuest said it completed volume shipments of its EZFlyer 230 and SyJet drives to new corporate accounts for use with laptop computers and corporate servers. These accounts could prove to be a big opportunity for SyQuest.

"We have been working with these companies for some time and it finally beginning to bear some fruit," said company president and CEO Ed Harper. He added that as people begin to use their laptops for presentations, the company's products will give them enough speed to make it work.

Analysts say that market offers a lot of opportunity, which could lead to continued revenue growth for ailing SyQuest.

"This is not a mature market and there's still a lot of room for growth," said Rosencrans. "They have the most opportunity with SyJet in the high-end market?That has the opportunity to be a very successful market, and they could build a niche with the EZFlyer."

Meanwhile, the company in May raised $8.5 million in the final stage of a year-long refinancing effort that brought the company $120 million of new equity.

That financing, along with a new round of products, gave Rosencrans reason to change his forecast for the company, which he doubted would still exist by the end of 1997. He feels it will be a "financially viable" company.

"They have ingredients in place to survive," Rosencrans said, but he questions their ability to market and promote their products.

Harper said SyQuest has repaired its strained relationship with D2, a value-added reseller/systems integrator in Europe. But he noted the company is still working to take advantage of OEM relationships. The company said it has shipped the first of an estimated 50,000 EZFlyer and SyJet drives to educational institutions in China. Rosencrans said SyQuest cartridge sales are expected to be higher in the quarter, due to multiple student usage for each drive. SyQuest and China's State Education Commission continue a joint development to expand the installation of SyQuest systems in China's more than 900,000 schools and institutions.

"We have an opportunity with China that is unmatched. But, in no way are we lessening focus in the U.S.," Harper said.