EMC Feeds The Data-Hungry Net Machine
By Todd Spangler, Inter@ctive Week
zdnet.com
January 27, 2000 10:19 AM ET
EMC Chief Executive Mike Ruettgers cites a Romanian folk saying to explain the growth prospects for his market-leading storage com pany: If you're a hammer, everything looks like a nail. The nonstop rush to e-commerce, he means — regardless of what shape it takes — fuels increasing demand for bigger, faster disks.
"We're where all the information lives," Ruettgers says.
EMC (www.emc.com), which traditionally found a home in the data centers of the world's largest corporations, has built itself into a powerhouse hammer of storage for the Internet economy.
EMC turned its attention to the Internet space only recently, having previously fo cused on larger companies with sales of at least $500 million. "A year ago, we only had a kind of casual interest in the Internet," Ruettgers says.
Now, however, Internet customers represent the key opportunity for the company. By the third quarter of last year, sales to Net companies accounted for 10 percent of sales, up from 2 percent in 1998. Ruettgers won't say how he expects EMC to fare in the "dot com" world, but he predicts this will be the year when the world's 2,000 biggest companies deploy their Internet strategies — many of them already are EMC customers.
Investors have snapped to attention. EMC's stock price skipped up more than 130 percent last year, from roughly $43 at the start of January to more than $100 by the end of 1999. Ruettgers, who has predicted EMC's revenue will hit $10 billion by 2001, likes to compare EMC to infrastructure companies such as Cisco Systems (www.cisco.com), which has a firmly established lead in its markets.
That comparison is valid in several respects, one of which is the cost of EMC's storage systems. Michael Adams, an analyst at Giga Information Group (www.gigaweb.com), says EMC is able to charge roughly twice the industry average because it has a track record for rock-solid reliability. "People are still buying EMC, and the reason is that when it comes down to price vs. can I store my data safely, the latter wins," Adams says. "The boxes don't break."
Also, like Cisco, EMC has an aggressive direct sales force. When Hew lett-Packard (www.hp.com) surprised EMC in June 1999 by severing its reseller arrangement, EMC didn't miss a beat in recapturing business it might have lost through HP. It later won a trademark infringement lawsuit against HP for using "MC" on its new storage systems.
"EMC said, 'We'll go right after that installed base of HP users,'" Adams says.
Looking ahead, what will drive EMC is new lucre from Internet installations. The storage demand from Net companies is on an explosive curve compared with traditional enterprise markets. EMC estimates the average company's storage requirement doubles once per year, whereas Internet companies see storage double in about 90 days.
The storage challenge for e-commerce companies is that data on the Internet never dies, says Mike Mael, vice president of applications and Web services at PSINet (www.psi.net), which installed $15 million worth of EMC equipment last fall in its data centers. "In the Internet space, content is created and it never goes away, so the market for reliable and ever-increasing storage increases to grow," Mael says.
EMC competitors are stepping up their attempts to cash in on the Internet-fed mountains of data. Sun Mi cro systems (www.sun.com) has scaled up its storage systems, sold in conjunction with its high-end servers. IBM (www.ibm.com) says it recently started shipping Enterprise Storage Servers, code-named Shark, which provide up to 11 terabytes of storage, exceeding the capacity of EMC's highest-end 9TB Symmetrix data storage devices.
How will EMC stay ahead of competitors such as Compaq Computer, Hitachi, IBM, Storage Technology and Sun? To better address the midrange market, EMC last year bought Data General (www.dg.com) for $1.1 billion. Furthermore, Ruettgers says, EMC will spend $1 billion on research and development over the next two years. Most of that development work will be on software, because Internet companies increasingly need automated storage systems and management tools to tame the billowing gigabytes of data, he says.
"The difference [from our competitors] is that at EMC, all of our best people are working on storage. I'm sure that's not the case at IBM or Sun," Ruettgers says. "The other guys are several years behind in terms of hardware and software development."
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