from barrons
No clash is imminent. In fact, the firms cooperate to make sure Veritas software works smoothly
with EMC gear. But Veritas has big ambitions, and one of them is a campaign for the
"virtualization" of data storage, in which a layer of Veritas software would stand between a
computer and most data-storage products. When calling for data, the computer wouldn't know if
the data were coming off a disc, a tape or a fiberoptic network. Nor would the computer care if the
gear behind the Veritas software was supplied by Compaq Computer, Sun Microsystems or by
EMC.
This "access layer" of Veritas software, in fact, is one of
the few developments in sight that could loosen EMC's
grip on high-end data storage -- where EMC has
drubbed tough rivals like IBM and Hitachi. But while
Veritas Chief Executive Mark Leslie happily talks up his
vision of a more heterogeneous data-storage market --
that is, one that would seamlessly mesh multiple brands of
hardware -- he's not ready to pick a fight with EMC.
"We value EMC as a customer," he says. "Don't position
us as deadly enemies because it would be incorrect to
do."
And highly impolitic as well, given that EMC rules the world of mission-critical data storage. Ten
years ago, EMC crafted arrays of small disc drives into reliable substitutes for IBM's specialized
mainframe disc drives. And in the mid-1990s, when UNIX servers from the likes of Sun and H-P
began to take computing jobs from the mainframes, EMC grabbed the storage end of the UNIX
business as well.
Computer-systems makers didn't exactly welcome EMC to the party. Storage sales have been a
lucrative adjunct to computer sales, with IBM and Sun reaping fat margins on the sale of
industrial-strength disc drives. Then came EMC's aggressive sales force, with its more reliable
storage systems, and most of the world's large enterprises and a good share of the new dot.coms
bought in. "The systems vendors all hate EMC. They despise those guys," says Veritas' Leslie, with
unmistakable admiration. "EMC dominates the market."
The happy combo of engineering, sales and demand pushed EMC's sales up at a rate of 35% in the
last three years. Indeed, the average selling price of EMC's high-end systems has actually been
increasing, from $375,000 in 1998 to a recent $533,000, as the Internet has made faster access to
more data a key element of competitiveness.
"We see the demand for storage zooming in the future," says EMC Chief Executive Mike
Ruettgers. "It will be as big as it was in the 'Nineties." Meanwhile, traditional competitors like IBM
and Hitachi Data Systems continue to lose share. Indeed, IBM's much-heralded entry into
disc-array technology has floundered, mainly because it lacks the ability to link over fiberoptic
networks.
To maintain its edge, EMC spends hundreds of millions of dollars each
year on software development. That's led to innovations such as
software that unobtrusively replicates a company's customer records --
for disaster recovery or for the business analysis known as data mining.
Replicating such enormous databases previously bogged down
computer systems or significantly slowed the data network. Ruettgers
promises continued innovations, like a quicker substitute for the
tape-drive libraries sold by firms like StorageTek -- a product that
might come in handy for video-on-demand entertainment. "We're both
the hammer and anvil in this market," says Ruettgers.
Veritas is one of the few other firms with the smarts and the focus on
data storage to match EMC. After an unhappy childhood in the
'Eighties, when it tried to make fault-tolerant computers in competition
with Tandem, Veritas concentrated on software that improved the
UNIX operating system. The company's software allows a computer
to address its data demands to a virtual storage system, rather than the
actual hardware. That innovation enables customers to swap or enlarge
drives, without having to turn the computer off for the weekend.
UNIX vendors like Sun and H-P include a basic version of Veritas'
data-storage software on their computers, seeding the market for
Veritas to sell software upgrades to all those computer owners. Veritas
has similarly situated its technology as a component of Microsoft Windows 2000, seeding another
promising market. Through acquisitions and internal R&D, Veritas has assembled a product line
that can do things like make backup copies of discs, or perform database replication -- just like
EMC.
Since the mid-'Nineties, sales at Veritas have grown better than 50% a year, to $700 million in
1999 (with acquisitions). Earnings have grown even faster, to a 1999 level of $145 million, or 52
cents a share (not counting merger charges), up from $12 million, or 13 cents, in 1996.
Just as EMC opened the proprietary grip that computer makers like IBM and H-P had on storage,
Veritas is opening data storage yet another notch. EMC technology enables many brands of
computer to perform neat tricks with EMC drives. Veritas allows similar tricks with many brands of
drives. When H-P replaced EMC with Hitachi, as the drive supplier for H-P computers, Veritas
software allowed H-P customers to seamlessly shift their data from the EMC-manufactured drives
to the Hitachi-manufactured drives.
"Veritas bets that the data-storage world is going to be heterogeneous," says CEO Mark Leslie.
"We provide all the technology that EMC does, but for Hitachi, Dell, Sun" and others.
The Veritas technology also tends to cost less. "The EMC storage model is very expensive and
highly proprietary to EMC," says Pat Phelan, the Rockville, Maryland, regional manager of a
Veritas reseller called StorNet. A networked data-storage solution from Veritas and various
hardware vendors might cost several hundred thousand per terabyte (a trillion bytes), Phelan
claims. An all-EMC solution, he says, might cost upwards of a million bucks.
As the Internet and customer profiling make data more voluminous and valuable, new technologies
have appeared, like the Storage Area Network, or SAN. SANs give a computer access to large
numbers of data-storage systems, regardless of where they're located. EMC quickly became a
major supplier of SAN gear. SAN industry standards that would allow the carefree mingling of
different vendors are still being ironed out. But the prospect of heterogeneous storage networks
plays to Veritas' strength.
Last fall, Veritas announced a new software product, known as V, to take its virtualization of
storage devices to a higher level. As V products come to market in the latter part of this year,
Veritas Vice President Robin Purohit says the software will present a computer with a single,
simple interface that could be fronting for clusters of drives or yet-to-be-developed storage
devices.
"Their model of a pure software layer makes a lot of sense," says Peter W. Bell, a former EMC
salesman who is chief executive of StorageNetworks. Bell's firm is in the process of raising $270
million in an initial public offering to construct the world's largest storage area network -- using
EMC products, it should be noted.
Does EMC worry that Veritas' technology might disrupt its leadership in storage technology? Don
Swatik, who heads up EMC's storage area network push, says EMC's rivals have always
underestimated the challenges of engineering big data-storage systems. "We're like an Olympic
figure skater," says Swatik. "It looks easy until you try to do it yourself."
For now, both companies stand to prosper from the Internet's insatiable appetite for data storage.
And despite the enormous price/earnings multiples that their stocks fetch -- EMC trades at 86
times 2000 earnings estimates, Veritas at 240 times -- both firms' shares could continue to rise,
assuming they execute well and the market for tech stocks holds up. But somewhere up ahead,
these two companies will collide. And judging from the industry's history, only one of them will be
the hammer, and the other one, the nail. |
