The Wall Street Journal Interactive Edition -- May 4, 1999
Tech Center
H-P to Resell Storage Gear From Hitachi
In a Move That May Alter EMC Alliance
By JON G. AUERBACH
Staff Reporter of THE WALL STREET JOURNAL
Hewlett-Packard Co., aiming to bolster its presence in the fast-growing computer storage market,
plans to resell storage equipment from Hitachi Data Systems, a move that could alter H-P's existing
sales partnership with EMC Corp., industry executives say.
Last year, H-P sold more than $700 million of EMC equipment, accounting for nearly one-fifth of
the overall revenue of EMC, the largest seller of stand-alone corporate storage devices. Although
an H-P/Hitachi alliance could threaten that revenue stream, EMC says it believes it can do even
better without H-P.
An announcement of the new alliance is expected as early as
Wednesday, according to an Hitachi executive. The move is widely
expected by analysts, who say H-P wants to expand storage offerings
in part because it is worried that as the equipment takes on more functions, it is displacing sales of
H-P's bread-and-butter computer servers.
A spokeswoman for H-P, Palo Alto, Calif., said the company plans to hold a storage-related news
conference Wednesday, but declined further comment.
Analysts anticipate that H-P sales will account for about $1 billion of EMC's total estimated 1999
revenue of about $5.1 billion. In January the two companies agreed to extend their relationship for
three years.
EMC's stock closed Monday in New York Stock Exchange composite trading at $107, down
$1.9375.
H-P's new focus on storage comes at a time when the
Internet, the year 2000 and the explosion of digital data has
cranked up demand for sophisticated storage devices. Many
storage boxes now help manage data, backup files and
perform other functions that were just a few years ago done
solely by computer servers.
But EMC, Hopkinton, Mass., says it has been preparing for
the possible cessation of the H-P agreement. Robert M.
Dutkowsky, EMC's head of sales and marketing, says EMC
has been bulking up its sales force, and that the company
believes it can more than make up the revenue currently
generated together with H-P.
Under the current agreement, H-P gets a cut of EMC devices sold to customers that use H-P
computers. That agreement was set up in 1995 at a time when EMC was looking for partners to
help it sell its computer storage to big corporate customers.
Since then, EMC's sales have taken off, improving brand recognition. Some EMC salespeople
have argued they could sell more gear to H-P customers unencumbered by the H-P agreement,
which usually results in a higher sales price to the customer.
EMC isn't permitted under the terms of the agreement to sell directly to H-P customers, but could
-- and would -- do so if H-P strikes a far-reaching deal with Hitachi Data Systems. "Customers
that have H-P servers are going to buy EMC storage in 1999 and beyond," says Mr. Dutkowsky.
The move could provide a boost to Hitachi Data Systems, a unit of Hitachi Ltd. of Japan. The
company has been losing market share in recent years to competitors such as International Business
Machines Corp. and EMC.
In 1998, Hitachi Data Systems' share of the $30 billion world-wide market for storage systems
was under 2%, according to International Data Corp., a research house. One person familiar with
the matter said Hitachi Data Systems, based in Santa Clara, Calif., has agreed to dedicate about
150 salespeople to work with H-P.
Executives at H-P have been looking to restructure the EMC reseller agreement for some time,
EMC says. Mr. Dutkowksy says H-P has long been in favor of an original equipment manufacturer
deal, under which EMC would make storage devices for H-P, which could be sold under the H-P
name and serviced by H-P employees. As recently as a few months ago, H-P has asked EMC to
consider an original equipment manufacturer agreement, but EMC has rejected the idea, says Mr.
Dutkowsky.
Also Tuesday, EMC plans to announce that Harold R. Dixon has been appointed to the new
position of senior vice president of global sales and services. Mr. Dixon previously headed EMC's
North American sales force. |
