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Technology Stocks : EMC How high can it go?
EMC 29.050.0%Sep 15 5:00 PM EST
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To: Gus who wrote (12910)7/19/2001 7:49:16 PM
From: pirate_200  Read Replies (1) of 17183
 
> 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.

I'm talking margins on hardware, not after-the-initial-sale software. EMC, IBM and Hitachi all sell
storage hardware with software initially and then there's add-on software depending on what
extra features they want. The "post-initial-sale" software is a good margin business but without
continuing in-roads into new installations, it is limited to the installed base. I'm curious what
the gross margin has dropped to on that initial hardware/software combination for EMC and
what it is for IBM/Hitachi and how many units each is selling? The unit sales is important
because each unit represents a customer that you can later sell the add-on software to.

Gross margin erosion on hardware will be followed by gross margin erosion on software, if the
competition gets to the point of duplicating the software features. This hasn't happened yet.
It would be interesting to see if EMC is considering selling or licensing its software to run on
other's hardware to help prevent that erosion.
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