Monday August 7, 3:04 pm Eastern Time
EMC to keep lead in storage, for now - analysts
By Nicole Volpe
NEW YORK, Aug 4 (Reuters) - The boom in electronic commerce has made data storage one of the fastest growing markets in the computer industry, and computer makers are in a hurry to remake themselves as storage players as a way to offset slower growth in personal computers.
But storage market leaders EMC Corp. (NYSE:EMC - news) and Network Appliance Corp. (NasdaqNM:NTAP - news) , say they will not cede their positions at the top of a market expected to grow into the tens of billions of dollars in the next three years -- and analysts don't see the computer makers dominating this specialised business very soon.
Analysts said they expect that the storage specialists will eventually be forced to lower prices to compete with computer makers such as International Business Machines Corp. (NYSE:IBM - news) , Compaq Computer Corp. (NYSE:CPQ - news) and Sun Microsystems Inc. (NasdaqNM:SUNW - news).
``When I talk to EMC customers, many say they are rooting for competition,'' said Wit Soundview analyst Gary Helmig. ``Prices are going to come down and EMC's prices are going to have to come down.''
EMC Chief Executive Mike Ruettgers told analysts last week to expect the company to expand faster in the second half than the 43 percent revenue growth the company reported in the second quarter.
``EMC is uniquely positioned to take advantage of the content big bang,'' he said. He also reiterated that the company would post sales of $12 billion in 2001. EMC reported $2 billion in sales in the second quarter on net income of $429 million.
SG Cowen analyst Richard Chu maintained a ``buy'' rating on the stock following the analyst meeting.
``EMC momentum remains tremendous, however, we think issues of competition continue to deserve attention,'' he wrote in a note to clients.
Network Appliance, a leader in the market for network attached storage (NAS), which allows for data to be stored and served as lower-cost large files, said last week it would jointly develop new technologies with privately held Giganet Inc. to reduce bottlenecks in storage networks.
``It's important to know that Network Appliance continues to push the envelope as well,'' said Bear Stearns analyst Andrew Neff.
Last week, Compaq unveiled new storage products, including the TaskSmart N-series appliance, Compaq's first server appliance geared toward the NAS market.
Mary McDowell, vice president and general manger of Compaq's industry standard server group, said the goal is for Compaq to be the No. 1 provider of NAS within 12 months on a units-shipped basis, displacing Network Appliance.
Analysts remained unconvinced that Compaq, which saw flat revenue growth in storage products in the second quarter, would be able to meet that target.
``They are coming out of left field,'' said Neff.
Dell Computer Corp. (NasdaqNM:DELL - news) said recently it has had to delay shipments of new products coming out of its purchase of ConvergeNet Technologies Inc. for $332 million last year.
Executives said that the merger, which was supposed to bolster Dell's ability to compete in the storage arena, had been problematic and that the product has been delayed some 90 days.
IBM's storage sales rose more than 30 percent in the second quarter versus the year before, but Merrill Lynch analyst Steven Milunovich said he did not expect IBM to be an immediate threat to EMC, even if it is executing better.
``IBM expects to win by being more open than EMC and employing a modular architecture,'' Milunovich said. ``For now, we think users prefer an integrated approach and trust EMC.''
Hewlett-Packard Co. (NYSE:HWP - news), the world's largest maker of printers, has said it wants to be the leader in both consumer and big-business computing.
``We're not yet convinced HP can sustainably take server and storage share,'' said Milunovich.
Sun Microsystems Inc., already the largest maker of servers -- computers that serve Web pages -- also recently announced new storage products and said they were being received well.
Both Sun and Compaq hope to sell storage at the same point at which they are selling servers. Compaq executives said that some 80 percent of customers buying servers would also buy storage.
But Neff said that companies consider data too important for companies to trust anyone but a specialist, comparing buying storage systems to getting heart surgery.
``If you need to get heart surgery done, do you want to get your surgery done in the hospital by a surgeon who has done 4,000 heart transplants, or do you want to go to the guy who says he'll do it for you for half the price?'' he asked. |
