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Sunday December 30 2:23 PM ET
EMC Seeks to Rebound in '02 with Data Software
By Tim McLaughlin
BOSTON (Reuters) - In the late 1990s and 2000, data storage systems maker EMC Corp. (NYSE:EMC - news) was on a roll, as the explosive expansion of the Internet fueled a commensurate increase in electronic data -- and a need for machines to store all that information.
But when a global downturn in information technology spending hit in 2001, profit margins at EMC plummeted as the company was forced to cut prices in response to deals offered by such rivals as International Business Machines Corp. (NYSE:IBM - news), the Hitachi Data Systems unit of Hitachi Ltd. (6501.T) and Compaq Computer Corp. (NYSE:CPQ - news)
In this price-conscious, competitive environment, one-time Wall Street darling EMC, the world's largest data-storage systems maker, reported its first loss in a dozen years.
With technology spending expected to remain weak and customers wanting to cut costs, EMC is fighting back. It unveiled plans in the fall for automated storage management software that it says will work with competitors' machines as well as its own, enabling companies to cut down on technicians.
Rivals such as Compaq and Hitachi are expected to respond with software or alliances with software vendors that can compete with EMC's offering.
MODEST STORAGE GROWTH AHEAD
The emphasis on software in 2002 comes as several data-storage executives polled by Reuters said they expected weak -- flat to single-digit -- revenue growth, after a sharp industry contraction in 2001.
Network Appliance Inc. (Nasdaq:NTAP - news) Chief Executive Daniel Warmenhoven estimates the key external data-storage market for computers running Windows and Unix (news - web sites) operating systems declined by at least 15 percent to $17 billion in 2001.
``I expect to see some growth in 2002, but it is probably in the 5 percent to 6 percent range, bringing the market to about $18 billion,'' Warmenhoven told Reuters.
That's far from the 35 percent growth EMC projected for itself at the start of 2001, as it began the year with a revenue forecast of $12 billion, versus $8.87 billion in 2000.
EMC retreated from that target as the hardware price war clobbered its expectations. After EMC lost nearly $1 billion in the third quarter, Wall Street analysts sharply reduced their 2002 revenue outlook to a consensus of about $6.1 billion, and $6.9 billion in 2001, according to Thomson Financial/First Call.
The loss was due partly to EMC's hard-charging sales force missing a shift in the data-storage market and pushing its refrigerator-sized Symmetrix machine instead of its smaller, less costly Clariion product. IBM capitalized on EMC's misstep, picking up market share with its Shark machine.
At the same time, Compaq invaded EMC's turf by selling machines that take up less space, said Mark Lewis, vice president of Compaq's enterprise storage division. ``Big box storage is dead,'' Lewis said.
Indeed, Warmenhoven said Network Appliance is shipping one terabyte, or one trillion bytes, of data storage in a single shelf that is about 5 inches in height. ``Given this type of density, it makes economic sense to buy storage as you need it and add it to an existing system,'' he said.
EMC Chief Technology Officer Jim Rothnie said, however, customers still want large machines because they don't want to bother with managing the hundreds of smaller units needed to get the same capacity.
EMC PUSHES STORAGE MANAGEMENT SOFTWARE
EMC has turned its attention to data storage management, Rothnie said, investing ``billions'' over the past few years to develop the software that automates management. The company has even reorganized so that software is its own division.
``Information will continue to grow in 2002, good economy or not, and companies will continue to look for management tools that reduce the complexity and management costs of burgeoning storage environments,'' Rothnie said.
EMC wants to create an open storage software environment, where the codes that each storage system uses to communicate are widely available.
But Warmenhoven, along with executives from IBM and Compaq, said they are skeptical about EMC's initiative.
``It depends heavily upon the cooperation of storage vendors to achieve their stated goals,'' Warmenhoven said. ``And I don't believe any will cooperate with EMC. There is a drive toward standardizing storage management interfaces, but it will not be controlled by EMC.''
But EMC differs.
Rothnie said EMC has forged strong relationships with many suppliers of complementary software products, generating 50 software offerings.
``I don't think anyone else in the storage industry has generated even half that many products from partnerships,'' Rothnie said. |
