....wonder where emc is going.
Two different looks:
Despite stock woes, EMC looks to buy
Tom Witkowski Journal Staff
HOPKINTON--EMC Corp. plans to continue snapping up other data storage companies and new technologies, company executives told analysts last week.
Though its stock price is near its 52-week low, EMC Corp. is in a better position to buy other companies than any of its competitors, chief financial officer Bill Teuber said. The company, which acquired six software companies in the last 18 months, holds at least 40 percent of its assets in cash and equivalents, Teuber said.
EMC held a two-day analyst conference in Franklin and Boston last week. Company executives gave their assessments of the data-storage industry, EMC's financial health and strategy and the company's competitors. EMC, the data-storage industry leader, will fight to hold its market share, they told analysts. And with $4.9 billion total assets in 2001, just under $2 billion of that in cash and equivalents, the company is poised to buy.
"You'll see us aggressively on the acquisition front. This gives us great opportunity," said chief executive officer Joe Tucci. Tucci ticked through a list of competitors, some with "one foot in the grave," others "gone" and calling most of the startups not impressive.
"In 1999, these guys were all going to disrupt us and didn't want to talk. Now, they're banging on our door, and the phone is ringing off the hook to partner," Tucci said.
As the market leader, EMC is the company to which startups, especially those starved for funding and looking for a buyer, are going, said one industry analyst.
"They see 10 guys a week. We know it's true," said Steve DuPlessie, seniors analyst for the Enterprise Storage Group Inc. in Milford. That also gives EMC the luxury of picking and choosing and buying only what it considers prudent.
"EMC looks at everything in this space. They don't have to go very far to find it. It comes to them," DuPlessie said, explaining that the same startups come to his company seeking advice on who to contact at EMC.
But just because EMC has cash on hand, that does not mean the money is burning a hole in the company's pocket, Teuber said.
"It gives us firepower in the (merger) and (acquisition) space," he said--firepower EMC plans to use conservatively. Other large companies, including Nortel Networks Corp. of Brampton, Ontario, Microsoft Corp. of Redmond, Wash., and Lucent Technologies Inc. of Murray Hill, N.J., showed write-offs from bad acquisitions totaling $85 billion last year, Teuber explained.
"We are very prudent in what we do on the acquisition front. There was a lot of M&A activity we didn't take part in," he said.
Of its main competitors, for which data storage is just part of their businesses, Compaq Computer Corp. of Houston has less than 20 percent of its assets in cash, and Armonk, N.Y.-based IBM Corp., has less than 10 percent, according to Teuber and most recent financial reports available.
EMC's assets put it in a position of financial strength, despite declining revenue. EMC saw income of $109 million, or 5 cents per share, on revenue of $2.02 billion for the second quarter of this year. For the same period in 2000, EMC reported income of $429 million, or 19 cents per share, on revenue of $2.15 billion. The company's stock, which closed at $20.03, near the 52-week low of $17.76, is well off its 52-week high of $104.94.
EMC will likely continue to make purchases to improve its storage management software offerings, as well as those of companies making components that will better EMC's hardware, said analysts.
"Talent is still hard to get, and time to market is everything. EMC will continue to invest heavily in overall software. They still have holes to fill there," said DuPlessie.
Startups continue to aim for EMC's market share, Arun Taneja, a senior analyst with Enterprise Storage Group, said in the weeks before EMC's conference. And, EMC's hardware technology is beginning to show its age, he said.
"They're probably going to have to make some pretty decent acquisitions in terms of vastly different and new architecture," said Taneja. "When the architecture is getting old and tired, how do you make a 10-percent leap from there? You make incremental steps. How do you break the next barrier? There are some new architectures in the marketplace that are breaking those barriers.
"I think the challenge for EMC is: Can they do a new architecture in-house and in time to not let these startups impact them as they impacted IBM?" Taneja said, referring to how EMC stole the data storage market out from under IBM and never looked back. IBM is till trying to catch up with EMC.
EMC's method in the past has been to buy small companies while working to crush the larger companies against which it competes in the market.
"I don't think they think there are any big companies they can't put out of business," DuPlessie said.
EMC might consider the bit players that may have developed a better component or a hot technology, but cannot manage to take it the next step and get a product to market, he said. At the same time, EMC continues to spend "gobs of dough developing" the latest version of its Symmetrix technology.
"EMC recognizes they don't do everything. They're constantly looking, and they have to continue to look," said DuPlessie.
boston.bcentral.com
EMC Hits New Lows
EMC Corp. shares hit a 12-month low Wednesday, dropping 4% to $16.30 by 12:30 PM Eastern. The stock slide coincides with a research note by Merrill Lynch & Co. Inc., published today, which details conflict in EMC’s salesforce.
As reported on Byte and Switch yesterday, EMC has just lost Michael Ruffolo, head of global sales, and is rumoured to be bleeding sales staff to competitor Hitachi Data Systems (HDS) (see EMC Global Sales Chief Quits).
NOTE: Factual inaccuracy. Frank Hauck replaced Michael Ruffolo as head of global sales in April.
According to Merrill Lynch, these problems go yet deeper. In his research note, principal analyst Thomas Kraemer writes that EMC has recently fired a sales team in Germany, a manager in France, and 15 sales staff in the Netherlands. “Europe has always been a difficult region and continued turmoil would not surprise us,” he says.
EMC is said to be in the process of reorganizing its sales force, and Merrill expects a “significant” round of layoffs as part of this restructuring.
On top of this, Merrill says veteran hardware engineers are “unhappy” over the direction of the next-generation Symmetrix product, code-named "Spyder." It’s EMC’s "switch-in-a-box" and faces stiff competition from several startups, including Cereva Networks Inc., 3PARdata Inc., and Yotta Yotta. “There could be some senior-level defections,” over this, says Kraemer.
Then there’s the Brocade/McData issue, writes Kraemer. It turns out that EMC sales people have begun to promote Brocade Communications Systems Inc. switches over McData Corp.'s. McData was spun out of EMC about two years ago. The Brocade sales bias is likely to cause some friction between the parent and it’s spinoff, analysts say.
Kraemer concludes that EMC could emerge from this battle to refocus and reorganize as a much more formidable storage fighting force, but the price could be an operating loss in the September quarter.
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