From EMC Thread:
To: michael piturro (6222 )
From: kendall harmon
Tuesday, May 4 1999 9:25PM ET
Reply # of 6232
EMC--bloomberg after the close.
EMC Falls 6.5% on H-P's Expected Agreement With Rival (Update3) (Closes share
prices.)
Hopkinton, Massachusetts, May 4 (Bloomberg) -- EMC Corp. shares fell 6.5 percent
after the No. 1 maker of corporate computer-storage systems said it expects its largest
reseller, Hewlett-Packard Co., to unveil plans tomorrow to sell devices made by EMC
rival Hitachi Data Systems.
EMC plunged 7 to 100 in trading of 20.1 million shares, making it the fifth-most active
stock in U.S. markets. A person familiar with Hitachi's plans said that H-P will resell
Hitachi's storage systems. H-P would neither confirm nor deny the arrangement.
Hopkinton, Massachusetts-based EMC makes devices that companies use to store
data like billing information and Internet sites, and the company said it's talked to H-P in
recent weeks about the pending agreement with Hitachi. EMC gets about 13 percent of
its revenue from Hewlett-Packard, and an H-P sales agreement with Hitachi might
jeopardize that, analysts said. ''H-P is important to EMC,'' said Brian Goodstadt, an
S&P Equity Group analyst, who rates EMC a ''buy.'' Still, Goodstadt said that EMC
''has nine other companies that also resell their machines.''
H-P's planned sales agreement with Hitachi was reported earlier today by the Wall
Street Journal. H-P, the world's No. 2 computer maker, will hold a press conference
tomorrow in New York to describe new storage products.
Risky
Hewlett-Packard resells EMC's soda-machine size storage devices with its high-speed
computer servers, and H-P keeps a portion of those sales. In January, EMC and
Hewlett-Packard extended their agreement, begun in 1995, to December 2001. The
agreement has generated more than $1.3 billion in revenue for EMC, the company said.
That agreement also has benefited H-P, and striking an arrangement with a company
that EMC considers an archrival is risky, said Thomas Mancino, a Pacific Growth
Equities analyst. ''Hewlett-Packard is shooting itself in the foot by risking its relationship
with EMC,'' said Mancino, who rates EMC a ''strong buy.''
EMC spokesman Mark Fredrickson said EMC expects its agreement with
Hewlett-Packard to continue, but a provision in the contract allows EMC to compete
directly for H-P customers if H-P offers competitors' storage products that are over a
certain size. He declined to give further details about H-P's pending agreement with
Hitachi. ''We are prepared to go direct to the H-P space in a swift and aggressive
manner'' if the contract is broken, Fredrickson said.
Market Surges
At stake is the corporate data-storage market, which is forecast to increase more than
71 percent to $31.1 billion in 2002 from $18.1 billion last year, according to market
research firm International Data Corp.
EMC estimates that its revenue will more than double to $10 billion by 2001 from
almost $4 billion last year if the company maintains its estimated 35 percent share of the
market, ahead of No. 2 International Business Machines Corp.'s 22 percent. Hitachi
had about 7 percent of the market last year, according to Dataquest.
EMC's Fredrickson reiterated the company's forecast for revenue growth of more than
30 percent this year and in 2000.
On a conference call with analysts today, EMC said H-P's agreement with Hitachi
would be ''neutral'' to its revenue this year, Goodstadt said. ''The impression they gave
was that they have been preparing for this for quite a while,'' he said.
Even though Hitachi's market share is small, EMC has said it considers the company to
be a prime competitor because its hardware mimics that of EMC.
At one time, H-P's business accounted for as much as 20 percent of EMC's revenue.
That has declined as large corporate customers now go directly to EMC, Fredrickson
said. EMC's devices have become smarter and now have significant computing power
of their own.
Seeing this shift, EMC has doubled the size of its sales and service workforce in the last
year and a half, Fredrickson said.
EMC's shares have been battered recently amid concern that customers may trim
purchases later this year to deal with the Year 2000 computer glitch, which can cause
some older machines to read dates incorrectly. With today's plunge, its shares have
fallen 26 percent from a record 134 15/16 on March 30. Last year, it was the
fourth-biggest gainer in the Standard & Poor's 500 Index, rising more than threefold.
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