EMC's New Data-Storage Product Aimed at Rival Network Appliance
--From AOl.-- Cooters
Hopkinton, Massachusetts, Dec. 2 (Bloomberg) -- EMC Corp., the No. 1 maker of data-storage systems for corporations, will introduce a new product Tuesday to step up its battle with rival Network Appliance Inc., analysts said.
EMC, the leader in so-called storage area network technology, wants to gain customers in the fast-growing market for network attached storage, or NAS, where Network Appliance dominates. EMC's new product, code-named Chameleon, is expected to target small to mid-sized businesses, major customers of Network Appliance.
In recent months, EMC has fueled speculation about new products, saying repeatedly that it is moving to take business from Network Appliance. For an event it's hosting Tuesday, EMC sent couriers dressed as Superman to deliver invitations to analysts and investors. The invitations bill the gathering as ``bringing the `S' in `NAS' alive,'' said Mark Kelleher, a First Albany Corp. analyst.
``This means that EMC has validated the NAS market, and it's big enough for both of them,'' said Kelleher, who rates shares of both companies ``strong buy.''
EMC spokesman Mark Fredrickson declined to give details about the event.
In August, EMC President Joe Tucci told analysts that the company was revamping its sales force to ``take leadership from NetApp -- period.'' That triggered speculation among analysts that EMC had something big in the works, Kelleher said.
That speculation surged on Nov. 1, when Hopkinton, Massachusetts-based EMC bought closely held CrosStor Software Inc., whose sophisticated software competes directly with Network Appliance's.
Network Appliance holds about 40 percent of the NAS market, compared with EMC's 30 percent, according to IDC. The market researcher predicts the NAS market will grow from about $1 billion in 1999 to almost $7 billion in 2003.
Network Appliance President Thomas Mendoza, speaking from his company's Sunnyvale, California, headquarters, said he isn't concerned. ``EMC's talking about us has helped us,'' he said. ``NAS is a big market. Now, everyone wants in.''
Threat
The threat of a new NAS product from EMC, which already has a successful network-attached storage system for large corporations, has shaken Network Appliance's investors, analysts said. Its shares have plummeted from a high of $152.75 reached on Oct. 20. Yesterday, they rose $4.56 to $53.94 and have still gained 30 percent this year.
EMC ``has done everything possible, from smart to bizarre, to create an issue with NTAP's stock price,'' including ``calling large NTAP shareholders and rattling sabers,'' Thomas Kraemer, a Merrill Lynch analyst, wrote in a report last week.
EMC's Fredrickson said EMC frequently calls its largest shareholders, and that those shareholders may also own Network Appliance shares. ``I doubt we would talk to their shareholders per se,'' he said.
High Stakes
With the need for data storage surging, the stakes are huge. Two years ago, market researcher Gartner Group Inc. estimated that NAS-based storage would represent 3 percent to 5 percent of the $45 billion data-storage market, Kraemer said. Gartner now predicts that NAS will make up 8 percent to 13 percent of the market, he said.
Increasing its push into the NAS market isn't without risks for EMC, analysts said. NAS products are cheaper than storage area network devices, EMC's bread-and-butter business, and are easier to set up and maintain. Adding a midrange NAS product might cannibalize sales of EMC's other products, which have fat profit margins and are sold with service packages, some analysts said.
Merrill Lynch's Kraemer estimates that EMC's flagship SAN product, Symmetrix, and the software that supports it generated about $1.03 billion of the company's $1.32 billion in gross profit for the third quarter.
``Aggressive pricing and sales tactics to move NAS do, to some extent, threaten the pricing structure of EMC's core Symmetrix business,'' Kraemer wrote in his report.
Analysts say that threat has weighed on EMC's shares. Though they've gained about 43 percent this year, they have fallen from a record $104.94 reached on Sept. 25. The shares rose $3.88 to $78.25 yesterday.
And Network Appliance has not been idle. In September, it introduced a larger NAS storage device that puts it in more direct competition for business from large corporations, EMC's main customers.
Analysts give credit to Network Appliance for pioneering and refining the nascent NAS market, and to EMC for moving into a new area to fight its fast-growing rival, even if grudgingly.
``EMC's impending entrance into the NAS market represents a capitulation of sorts,'' wrote Kraemer. ``If it could, EMC would sell Symmetrix forever and nothing else.''
Dec/02/2000 10:53 ET |
