ay 26, 2000
Dow Jones Newswires
EMC Falls After DLJ Raises Worries Over
IBM Disk Drives
By SCOTT EDEN
NEW YORK -- EMC Corp. (EMC) shares slipped as much as 4% Friday
after an analyst at Donaldson Lufkin & Jenrette, in a brief note to clients and
the firm's sales force, said the storage maker could get stung by continued
disk-drive production glitches at International Business Machines Corp.
(IBM).
"We believe that IBM's production problems on the 10,000 RPM drive are
getting worse," DLJ analyst Kevin McCarthy wrote. "This will most likely
affect EMC as the company uses the 10,000 RPM drive in the new
Symmetrix 8000," a line of computer-storage systems that EMC introduced in
late April.
But EMC and other analysts following the company disputed DLJ's evaluation
of the matter. The Hopkinton, Mass., company, among the biggest buyers of
disk drives in the world, doesn't currently use IBM's high-end 10,000 RPM
product at all. Rather, EMC's Symmetrix 8000 uses drives supplied only by
Seagate Technology Inc. (SEG) and, in Japanese markets, by Fujitsu, said
Mark Fredrickson, an EMC spokesman.
Earlier this month, EMC said it dropped a commitment to buy $3 billion
worth of IBM drives because the devices fell short of quality standards and
because the company couldn't meet production deadlines. EMC does,
however, have a contract to buy IBM's 10,000 RPM drives once they
become available, "but only if they're able to meet our specifications,"
Fredrickson said.
McCarthy said that although EMC "is working closely with Seagate to
replace" IBM's drive in the new Symmetrix machines, "we do not know if
they will be able to meet the strong order book."
Fredrickson, however, said EMC is getting all of the supply it needs to easily
cover demand.
"Any suggestion that disk-drive supply will have any effect on our quarter is
false," Fredrickson added. "This situation will not in any way affect our
quarter or any of our business in the foreseeable future." He reiterated the
company's top-line growth projection for 2000 of 25%.
McCarthy wasn't immediately available to comment beyond his early-morning
remarks.
In the note McCarthy also said he believes "the shortfall in production will
affect IBM's quarter."
IBM spokesman Rob Wilson said there is no change in the company's plans
for the device. "We remain on track for limited shipments in the second
quarter and a ramp-up of production in the third quarter," Wilson said.
Production woes left IBM's disk-drive sales in the first quarter $350 million
below last year's level. The company had overall revenue in the first quarter of
$19.35 billion.
IBM Chief Executive Louis V. Gerstner said in his annual address to stock
analysts earlier this month that the disk-drive manufacturing problem "cost us
in the first quarter, and it's going to cost in this quarter."
EMC stock recently traded at 108 9/16, down 1 15/16, or 1.8%, after falling
as low as 105 1/2 earlier Friday. Midday volume reached 3.4 million,
compared with average daily turnover of about 6 million.
Shares of IBM, Armonk, N.Y., moved at 106 5/8, up 1/8, or 0.1%. They
earlier fell to 104 9/16. Volume totaled 3.1 million shares, compared with the
daily average of 7.9 million.
-Scott Eden; Dow Jones Newswires; 201-938-5253
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