But StorageTek's focus on tape is a mixed blessing, analysts say, because tape is largely viewed as a technology on its way out. What's more, StorageTek remains weak in key growth areas of the storage market. It was a relative latecomer to the Information Lifecycle Management (ILM) party, though it's offering a range of hardware and software, including disk arrays, as part of its ILM strategy (see StorageTek Adds More ILM).
Kaushik Roy of Susquehanna Financial Group thinks StorageTek's showing in the disk market's been weak as well: Despite reselling disk storage arrays from from LSI Logic Corp. (NYSE: LSI), as does IBM Corp. (NYSE: IBM), StorageTek's failed to do as well as Big Blue. Roy attributes this to a lack of initiative in adding value to the subsystems.
The solution for StorageTek, says Roy and others, lies no further than its cash and investments -- which were $928 million last quarter. Roy says investors want StorageTek to use that cash, either to issue a dividend or to expand its horizons through acquisitions.
StorageTek may be better advised to buy its way further into the software market, instead of struggling in the highly competitive midrange disk-based storage segment, Roy opines. "If I were them, I'd focus more on software... The margins are higher, and that's where the customer pain point is."
Others agree StorageTek needs to open its wallet. In a note to clients today, analyst Stephen Chin of UBS writes that "additional differentiation of products" is still needed by StorageTek. "We... expect the company will likely look to leverage its solid cash position of over $1B to further enhance its storage softare capabilities as a means to better differentiate its product sets," he writes.
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