MTI Profit Makes Stock Scoot: Page 2 of 3

MTI’s improved margins during the quarter may also have sweetened its stock today. The company saw its margins increase to 34.7 percent during the quarter, compared to 27.6 percent for the year-ago quarter.

On the downside, revenues for the quarter, which ended on April 5 this year, totaled $22.4 million, down from $25.7 million for the year-ago quarter, but up from $19.6 million the previous quarter. The revenues were split about 50-50 between product- and service-related sales, although they tipped in favor of product revenues, which accounted for $12.4 million. That’s down from $14.7 million for the fourth quarter of 2002.

The breakdown of service vs. product revenue is interesting, especially in light of MTI’s announcement in April that it would discontinue its branded SAN and NAS product lines (see MTI Halts Its Hardware). Instead, the company said at the time, it will resell EMC Corp. (NYSE: EMC) storage to its customers and reposition itself as a pure services company. Service revenues for the fourth quarter of 2003 accounted for a mere $10 million. The company says the results from the reseller deal are not reflected in its 2003 results.

This shift in strategy explains the delay in reporting fourth-quarter and full-year earnings, according to MTI’s CFO Mark Franzen. "With the new SEC rules and disclosure requirements, we wanted to be as accurate as possible, and to be late by a day or so was considered a small price to pay," he writes to Byte and Switch in an email.

While the initial reactions to MTI’s decision to phase out its own storage systems were resoundingly negative -- sending its shares spiraling down more than 23 percent in April -- today’s market enthusiasm may indicate a shift in mentality toward the deal.