EMC vs. NTAP margins:
Message 16517556
Reading research reports, to try and decide which company has a sustainable competitive advantage, isn't likely to give a definitive answer. IMO, the thing to do is follow gross margins, and see who is able to maintain market share without sacrificing margins. That will tell you what the collective decision of their customers is, about who has (relatively speaking) pricing power.
When I started buying NTAP and EMC, I thought EMC was the safer company, with the brand name, whose numbers would hold up better in a difficult macro environment. I thought NTAP was the more speculative play. But, so far, it looks like the other way around. The direction their gross margins is going in, is a startling contrast. And the market is beginning to treat their stocks differently. So, I will probably sell my EMC, slowly on rallies, and hold onto my NTAP. I'll continue to hold both, but have a tighter grip on my NTAP.
A lot of people are saying that storage is becoming a commodity, on the road that first PCs, and then servers, are on. Certainly, EMC is currently acting as if they are in a commoditized sector, cutting prices till profitability disappears, in an attempt to hold onto market share. Investing in storage hardware companies now, is making the bet that this is only a temporary situation, that the economy will rebound by 3Q02, and the price wars will end. That's the bet I'm taking.
In addition, even in a commoditized sector like PCs, the best company, Dell, seems to have a sustainable competitive advantage. I've been expecting other companies to copy the Dell methods, in selling and manufacturing, but, year after year, no one seems able to do it, in spite of the fact that everyone knows the Dell Method is better, and vast efforts have been spent toward trying to copy it. I'm gradually coming around to the belief that, even in a commoditized sector, the best company can be a good investment.
IMO, the track record of storage is that, the only companies who succeed, are those who are focussed on the sector. Conglomerates, who do storage in order to have a complete product line, their track record isn't very good. EMC has beaten them, over and over. I'm betting they will, again. It's the smaller upstarts with a different approach, like NTAP, who are the most serious threat to EMC. |
