Data storage free-for-all shaping up for 2002
(Adds comment from EMC in paragraphs 7-8)
By Tim McLaughlin
BOSTON, Oct 31 (Reuters) - The high-flying data-storage
industry has come back to earth, but competition has never been
keener as rivals of industry giant EMC Corp. <EMC.N> circle the
company that dominated them for nearly a decade.
As revenue expectations for Hopkinton, Massachusetts-based
EMC shrink, rivals such as IBM Corp. <IBM.N>, Hitachi Data
Systems and Compaq Computer Corp. <CPQ.N> say they have the
tools to break EMC's lock on the high-end data-storage market.
"The story that people are missing is what we're doing to
(EMC) on the enterprise side," said Mark Lewis, vice president
of Compaq's enterprise storage group, which sells hardware and
software to large corporations.
Lewis said it is a mistake to view Compaq as just a server
company that sells mid-priced storage systems. EMC recently
struck a sales pact with Dell Computer Corp. <DELL.O> aimed at
upending Compaq's leading market share in that mid-range
segment.
Lewis, however, said Compaq is winning lucrative business
in the enterprise market, where EMC is No. 1, at EMC's expense.
"(EMC) should be more worried about us coming into their
market and taking them out," Lewis said.
Ken Steinhardt, EMC's director of technology analysis, said
competitors are getting more aggressive in their marketing
efforts, but ultimately those efforts are not affecting the
decisions made by customers.
"It's an exciting place and they want to be there,"
Steinhardt said. "But they're not there with the fundamentals,
the products, the technology and the service and support."
DIFFERENT STORY LAST YEAR
At this time last year, Wall Street would have paid little
attention to the boasts of EMC's rivals. After all, EMC would
unveil plans to generate $12 billion in revenue in 2001, a 35
percent increase over 2000.
EMC's rivals now have Wall Street's full attention after
EMC posted a $945 million net loss in the third quarter and
conceded it sales force failed to recognize key market shifts.
Wall Street analysts expect EMC's revenue to be $6.9 billion to
$7 billion this year, and as low as $6.1 billion next year,
according to research firm Thomson Financial/First Call.
As EMC built a company based on rapid growth, it failed to
respond quickly enough to the gains made by rivals and to the
customer shift toward smaller, less expensive machines that
store e-mail, credit card transactions and other vital
corporate information.
As late as August, EMC Chief Executive Joe Tucci compared
IBM's Shark storage device with the toy that comes with a
McDonald's Happy Meal. He said IBM was able to ship a growing
number of Shark machines because they're thrown in with IBM's
booming mainframe business.
Tucci got a laugh with that comment at an EMC storage
conference for industry analysts and reporters. But no one at
EMC was smiling when two months later IBM announced that
Wal-Mart Stores Inc. would use 20 Shark machines to run its
industry-leading inventory and supply system.
"We got tremendous momentum from that deal. And I remember
reading that Happy Meal remark somewhere in the newspaper,"
said Bob Samson, IBM's vice president of worldwide storage
sales and operations. "You know why they say that? Because
they're a one cheeseburger play. We don't mind being called a
Happy Meal because we offer our customers a little of
everything."
LOCKED UP
EMC secured a lock on the high-end data storage market in
the early 1990s with its refrigerator-sized Symmetrix device.
While IBM squandered its lead with a number of failed
iterations of its own machine, EMC racked up gross margins in
the 50-percent range selling the pricey Symmetrix.
But with hardware prices falling fast, thanks to renewed
competition amid a global spending slowdown for information
technology, EMC is recasting itself as a software company whose
products will run on the hardware of rivals.
"Many in the industry had pegged them as a proprietary
closed play," Samson said.
EMC unveiled new and repackaged software products on Monday
to address that perception and to move further away from its
hardware-centered business plan.
"I agree with the EMC software business model that says you
have to sell software decoupled from hardware," Compaq's Lewis
said. "They are awful late to market. We've been doing this for
three years."
EMC's software sales accounted for 20 percent of its
overall revenue in the third quarter. Tucci said he wants
software to account for 30 percent of EMC's revenue, which
could take several quarters after the industry rebounds.
Meanwhile, Hitachi Data Systems, a unit of Japanese
electronics giant Hitachi Ltd. <6501.T>, plans to spend up to
$1 billion next year to acquire start-up software firms. EMC is
hunting for those firms, too, and holds about $5 billion in
cash and equivalents.
What's more, Hitachi has sales pacts with Hewlett-Packard
Co., a former EMC ally, and most recently with Sun Microsystems
Inc. to sell its hardware. And with the pending merger between
HP and Compaq, Hitachi's presence in the data-storage market
could be felt that much more.
((--Boston newsroom 617-367-4106; fax 617-248-9563; e-mail
boston.newsroom@reuters.com))
REUTERS |
