.....Anyone have a clue as to what Hitachi and IBM maintain for margins in their storage systems? It would seem EMC may have to drop to their level, all other things being equal (features, performance etc.) to keep business.
Not really. Assuming the ratio of service revenue to hardware revenue is the same for EMC, IBM and Hitachi, EMC would have the clear edge in gross margins due to the sheer size of its software business. Software was $498M, or 25% of EMC's storage revenue in 2Q2001.
IBM has a much larger software business than Hitachi, but Tivoli is in shambles or as IBM euphemistically put it in the transcript:
Tivoli continued to work on its product transition. But on top of this, customers deferred work in areas like systems
management because its complexity means a longer-term payback.
From the press release:
Tivoli revenues declined as a result of continuing transitions in this unit's product line. Tivoli's decline adversely affected IBM software revenues by approximately five points of growth.
In constant currency, IBM Software booked $3B in revenue while registering flat growth so if Tivoli cost IBM Software 5% of growth that translates to a staggering $150M decline in Tivoli revenue!
Tivoli's main business is system management software and it competes with the likes of Computer Associates, BMC Software and HWP. Storage management is a module in the system management frameworks of these vendors. Tivoli's dilemma is that while the demand for big ticket systems management frameworks continues to be lackluster, it is losing significant market share to Veritas in back-up and to EMC in Storage Infrastructure and Storage Resource Management. Remember that EMC nosed ahead of Tivoli in the overall storage software market in 1999 and Veritas nosed ahead of Tivoli in 2000. Note also that Tivoli declined significantly while EMC Software grew by 42% and Veritas grew by 31%.
By all accounts, HDS had a meaningless share of the software market in 2000 despite grabbing around 6% to 8%of the external storage market in 2000. HDS claims to have booked $50M in storage software sales - or about 10% of revenues - during the 3 months ended March 2001 as part of its $480M quarter. HDS Software is relatively new and its plans to introduce a new software product every quarter for the next year or so indicates that their software margins are still non-existent. That's typical at the front-end of any software development program.
By the way, note the skew in IBM's storage results. IBM Global Services is Big Blue's crown jewel and it is the biggest buyer of IBM storage products along with EMC's Brokerage (trade-ins). |
