EMC unveils software to run on any machines like VRTS. EMC and IBM lose market share to Hitachi. Margins for storage company are shrinking as competition becomes fierce. Is there any reason to believe that a storage company like NTAP can dominate storage or are we in an endless price war against multiple competitors. If the latter is true, why own any storage company stocks?
I have a few questions as well. First, we've been hearing about increasing competition for years yet that hasn't really done anything to EMC. Gross margins are now falling, but is that due to competition or a weak economy and EMC didn't realize how bad the economy really was and is now paying for that. I think it's pretty clear EMC management misunderstood the size of this recession and is now paying the price of lower GM and EPS. EMC for the past 2 years has been talking about selling more software, so this whole software pushing isn't because margins on hardware are all of a sudden falling.
HP uses Hitachi. Dell uses EMC. Compaq might use Hitachi hardware, but i'm guessing they make their own. Sun uses Hitachi. So really, EMC only has two major competitors..IBM and Hitachi. I wouldn't call this a super competitive industry..
EMC wasn't prepared for this decline, so is probably lowering prices to get rid of the inventory. So I'm not sure this is necessarily a sign to come that gross margins on hardware will now be 30% instead of say high 40s to low 50s.
Based on prior market data, NTAP has dominated their sector, and it is possible they may even gain share during this tumultuous cycle; leading companies often do. It will be important to watch the research reports to get a sense of that.
Someone pointed out earlier that NetApp's margins are still in the 50s, while EMCs are in the low 40s i think.
Uncle Frank, as a long time lurker on the Gorilla thread, I value your input. Storage is certainly a long term growth sector but the competition is becoming so fierce, particularly with the rise of Hitachi, I am beginning to question whether it is a good place to invest. I currently own NTAP, EMC and VRTS.
You have a right to be concerned. If you can't point to a few key competitive advantages NetApp has over say EMC or Hitachi then you are just hoping or speculating that NetApp will hold the top spot in NAS.
As of right now, I'm not sure how focused Hitachi is on NAS. EMC has appeared to be pretty focused, but they just admitted they lied about their NAS sales. The sales people at EMC definitely run into problems into which technology they want to sell (NAS or SAN).
NetApp has it's WAFL technology. I'm not sure how big of an advantage this is. DAFS is another technology that should help NetApp, but DAFS is a open technology and any NAS vendor could support it. |
