STK regroups, exits solutions business

Posted on January 01, 2000

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by Heidi Biggar

StorageTek last month outlined the first phase of a broad reorganization plan, which calls for the reduction of 1,600 to 1,750 positions by mid-year, a recommitment to key product areas, and an immediate exit from cost- prohibitive businesses.

"The idea is to focus on core com petencies," says Randy Chalfant, StorageTek director and chief technical assistant to the CEO, "and that means tape automation, virtual storage (both tape and disk), and storage area networks (SANs)-and not solutions integration. The bottom line is that our solutions group was more costly than it was beneficial."

StorageTek blames the solutions group's failure largely on the sheer size of the infrastructure required to support this type of business. "It turned out to be one of those businesses that take a very large infrastructure to play well in the marketplace," explains Chalfant. While Chalfant did not specify a head count, he did say that the solutions group accounts for a large chunk of expected layoffs. Thus far, 350 people have been let go company-wide.

While StorageTek is actively looking to spin off or sell the solutions group, the company will remain an active player in the storage integration business, with consulting services for its full line of virtual, automation, and SAN products.

However, despite recent financial woes, StorageTek remains strong from a technology standpoint. "1999 was a really rough year for them, but more from a Wall Street perspective," says John McArthur, vice president of storage research at International Data Corp. (www.idc.com). "However, from a products perspective, StorageTek's enterprise DASD and tape groups are probably in better shape than they have been in the last five years."

Aside from initial installation problems with the first release of Virtual Storage Manager (VSM) and yield issues with 9840 tape drives-both of which have been resolved-StorageTek's tape business continued to perform solidly last year. Open-systems tape, for example, was up 70% relative to Q3 1998, according to Needham & Company, an investment research firm in New York.

Additionally, StorageTek reports strong growth for VSM and 9840 tape. VSM shipments topped 500 last month, up from 150 units in Q2, with management, performance, and capacity improvements expected by mid-year. And 9840 shipments went from 0 to 10,000 units in 18 months. STK plans to add native Fibre Channel support this quarter.

The company will also continue to invest heavily in SANaps hardware and services. Server-less backup and disk pooling capabilities are expected mid-year.

On the disk side, StorageTek continues to recover from hits by IBM and EMC/Clariion, in part through its reseller relationship with Sun. "The Sun relationship replaces some of the Clariion business," says Glenn Hanus, an analyst with Needham & Company, "but a substantial loss is projected on the mainframe DASD side." Chalfant claims that StorageTek has recaptured about 25% of the lost IBM business.


Randy Chalfant Director and chief technical assistant to the CEO, STK
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StorageTek has hired McKinsey & Company to steer its restructuring efforts and Goldman Sachs to court strategic relationships.


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