From EMC CC:
1) New Break-even Target - <$1.3B.
2) 4Q2002 Guidance - Flattish (~$1.3B)
3) 2003 Product cycle will be stronger than 2002 cycle. Recent pattern continues: loss of share in DAS but gain of share in networked storage.
4) Clariion probably outsold Symmetrix during the quarter. CX600 was introduced only in August but now accounts for more than 25% of Clariion revenue. CX400 was introduced on October 7. CX200 plus another product (CX600 NAS?) will be introduced on October 28 with Dell.
5) Celerra file server revenue was up 22% sequentially. EMC started selling a version of Celerra that works with both Symms and Clariions during the quarter.
6) Connectrix (switches & HBAs) revenue up 35% sequentially.
This could indicate a strenghtening of buying pattern of customers buying their switches and HBAs from their system vendor instead of trying to do it themselves or using third parties.
7) Information storage services up 11% Q2Q. Now firmly above the $1B annual run rate. The storage services market leader is IBM with around $3B a year in revenue, but EMC is growing faster; albeit, from a smaller base. As mentioned previously, FY2000 was EMC's best financial year ever, particularly for Symmetrix which is typically depreciated over 4-6 years. The expiry of those original 2-year service contracts should continue to fuel the growth of EMC Global Services. Networked storage is also more service-intensive than DAS.
8) By the end of 4Q2002 EMC will have increased its SERVICES headcount by 55%, or from 3,300 in 4Q1999 to 5,600 in 3Q2002 to 5,500 in 4Q2002 despite latest RIF.
9) By the end of 4Q2002 EMC will have increased its R&D headcount by 67% from 2,000 in 4Q1999 to 3,200 in 3Q2002 to 3,100 in 4Q2002 despite the latest RIF.
10) EMC appears to have made a calculated decision to maintain its direct sales headcount at around 5,000 to 6,000 as it allows its new sales channels to mature. It has brought down SG&A from 12,200 in 4Q1999 to 9,600 in 3Q2002. 4Q2002 SGA headcount should be around 8,400 implying leaner G&A staffing levels of around 2,400 to 3,400.
11) Centera revenue up 300% Q2Q from a tiny base. Centera was only introduced in early 2Q2002. Centera is sold primarily through 50+ application vendors like Documentum, Avid, Legato, etc. EMC buys the storage blades from Network Engines (NENG) in much the same way that they buy disk drives from Seagate and Fujitsu, and it then assembles them into systems and presumably holds them in inventory for its application partners.
EMC is the single largest customer of NENG, which completed its restructuring late last year so right now one can also track Centera sales through NENG's results.
Basic Centera configuration of 5TB has a list price of $100K for hardware and $110K for software.
Centera Tracker
Network Engines (NENG)
EST. EMC EST. EMC
NENG EMC Q2Q Sell-Thru Sell-Thru
Sales (%) (HW) (SW) Tot.
1Q2002 3.0M $ 1.5M - $ 940K $1.0M $1.9M
2Q2002 4.1M 2.3M 53% 1.0M 1.1M 2.1M
3Q2002 - 3.5M 50% (?) - - -
4Q2002 - 5.2M 50% - - -
1Q2003 - 7.8M 50% - - -
2Q2003 - 11.6M 50% - - -
3Q2003 - 17.5M 50% - - -
4Q2003 - - - - - -
Assumed:
1) 50% of EMC's orders from NENG are used to build up inventory for the 50+ application partners.
2) EMC sets a 25% margin on hardware orders from NENG.
NENG's latest guidance is cash flow positive by end of the year and break-even by 2Q03 or 3Q03. Prior to EMC's earnings release, NENG's current break-even point was around $11M-$12M a quarter. This implied that its business from EMC would continue to grow at 50+% sequentially until the middle of next year. This may prove to be conservative if EMC can continue to grow Centera the same way it did in 3Q2002. Though burning cash at a current rate of $3M-$4M a quarter, NENG is debt-free with around $1/share in cash and only 31.7M shares outstanding (float is only 13.2M shares) and should be a useful indicator of Centera sales for the next few quarters.
Hot stuff, those servers
Superthin designs are difficult chiefly because of one problem: heat. Air must flow over CPUs to keep them cool, but faster CPUs also run hotter, and thinner designs leave less room for cooling fins that radiate heat away.
"It's extremely difficult to fit the heat sink, much less the processor itself, in there," Bradicich said. Though the servers use comparatively basic, low-end parts, "how to cool them is beginning to be a high-end problem," he said.
Indeed, Network Engines, a pioneer of skinny servers, hired an aerospace engineer from Raytheon to design "heat pipes" that use evaporating alcohol to cool the dual CPUs of its new Sierra server introduced Wednesday.
news.com.com
If NENG plays its cards right it can parlay its non-exclusive relationship with EMC into a business with decent enough cash flow that will allow them to develop their security appliance business where I think their technology will play very well. |
