EMC getting hip to hype
cbs.marketwatch.com
EMC's Ruettgers chases cool of Valley
By Mike Tarsala, CBS MarketWatch
Last Update: 1:15 PM ET Oct 30, 1999
SAN FRANCISCO (CBS.MW) -- Mike Ruettgers, chief executive of EMC Corp., traveled to San Francisco this week to bang a drum for his storage company whose voice is often lost in the din of Silicon Valley.
Hopkinton, Mass.- based EMC is one of the most successful stocks in the 1990s, sharing company with Cisco Systems Inc. as one of the greatest gainers on the Standard & Poor's 500 Index.
Some see EMC as a soon-to-be "blue chip" technology company. Others see that accolade is somewhat an insult. "They have a $67 billion market cap; I'd say they already are blue chip," said Paul G. Fox, an analyst with Banc of America Securities in San Francisco. "Take a look at Compaq's $33 billion market cap, and we think of them as a blue chip."
EMC's performance hardly ever comes into question. The company regularly boasts 30 percent yearly revenue growth or better. In its September quarter, profit rose 54 percent to $309.6 million, or 29 cents a share, from $201.3 million from a split-adjusted 19 cents in the year-ago period.
Ruettgers says that EMC is among the few innovative companies that provide essential technology building blocks. He makes a point, as EMC is viewed as the market leader for the type of high-end storage that's fast becoming a necessity for electronic commerce.
But EMC (EMC: news, msgs) rarely is mentioned in the same sentence as the West Coast technology heavyweights of its ilk, such as networking giant Cisco (CSCO: news, msgs), computer maker Sun Microsystems (SUNW: news, msgs) and database software maker Oracle Corp. (ORCL: news, msgs). That's despite storage becoming one of the most critical e-commerce components, analysts say.
Focus on storage
"There are three elements to online success -- storage, computing and communications," said Roger Cox, an analyst with Framingham, Mass.-based International Data Corp. And storage has been the focal point for success."
Why can't EMC take a bigger chunk of the technology spotlight? Analysts say it's because more than a matter of geography that separates EMC from its Silicon Valley peers. EMC is missing spunk. Pick the word -- hipness, style bravado. It's kept EMC at arm's length from the California
crowd.
No doubt, Cisco, Sun and Oracle came to dominate the royalty of techdom through foresight, business focus, tight operational control, a la EMC. But the West Coast companies became household names by making dull business equipment -- networking gear, back-end computers and databases -- snazzy.
Blame Ruettgers for EMC being uncool. One analyst describes him as strong, yet shy. He isn't known to have the charm of John Chambers, chief executive of Cisco, the sharp tongue of Scott McNealy, Sun's chief, or the swagger of Larry Ellison, who sits at Oracle's top post.
Catching cool
Still, John, Scott and Larry may be rubbing off on their Hopkinton counterpart. During his California trip, the EMC boss showed that he could be brash with industry predictions, somewhat vitriolic in talking about the competition and perhaps even more bullish than ever about his company's opportunities.
"Right now, he sees that one of the ways these West Coast companies gained in their industries is not only by doing well, but by being recognized as trend-setters," said Laura Conigliaro, an analyst with Goldman Sachs & Co. in New York. "That's the piece of the recipe he's been trying to work on."
During his West Coast tour, Ruettgers made several bold predictions that mimicked the type of bombastic comments for which McNealy and Ellison are known.
Whether it's regarding the growth of server computing or blasting software leader Microsoft, McNealy and Ellison are the Silicon Valley Soundbites. They are credited with making statements that sound ludicrous, then sometimes are viewed as visionary a few years later, Conigliaro says.
Flameout.com
Ruettgers' first prognostication: At least one major Internet ".com" service will fail in the next 12 months because of poorly planned technology infrastructure. "I don't think there's any question that this is going to
happen," Ruettgers said.
He then used the dire comment in unveiling the company's ControlCenter software, which he says is key to eliminating data disasters. Expected to cost between $100,000 and $200,000 per installation, ControlCenter helps monitor, manage and tweak the network storage systems used by large corporations and Internet service companies.
EMC is hoping that ControlCenter, along with its other key storage software, will be products companies can't live without.
"Once people put them in, there are no reasonable substitutes for them," Ruettgers said. "And they perform such a critical function."
His second prognostication: Venture capitalists soon will start providing funds only to the Internet companies that use a list of "approved" infrastructure technologies.
Assuming investors will want EMC on the list, Ruettgers then used the prediction to introduce an "EMC Proven" branding campaign that could help lock out high-end storage competitors. It's a similar strategy to Intel's "Intel Inside" program. And it has a ring, analysts say, similar to Sun's ".com" and Oracle's "Business On-Line" messages.
Ruettgers showed poise, as well as some teeth, when discussing perhaps the most touchy subject for his company in 1999; its relationship with Hewlett-Packard Co. (HWP: news, msgs) Earlier this year, EMC lost H-P, its largest reseller. The two companies had announced an three-year reseller relationship in January. Then in May, H-P changed plans, decided to sell Hitachi storage products under the H-P name.
To EMC's credit, the company's direct sales team scrambled, and managed to meet revenue projections without a hiccup.
Ruettgers acknowledged that the H-P move was a big surprise, calling the computer maker's move a "Pearl Harbor." He added that H-P breached its contract with EMC, but that he didn't plan any legal action against his one-time customer. He said he'd let the market do the talking, rather than the lawyers.
For their part, H-P executives at the time said that EMC charged too much, and that H-P wanted a bigger chunk of lucrative storage profits. Storage hardware often commands profit margins of 50 percent or more.
Ruettgers flatly said that H-P made a mistake.
Ours is better
"I can't believe their business is better today than when we were working with them," Ruettgers said. "However, our business is better. They should have been looking at their operating margin and not the gross margin, because there's no way that their operating margin (for storage) is as good as it was."
With H-P worries now in the past, EMC's next big challenge will be to move squarely into the competitive market for midrange storage, where H-P, Sun, IBM and others are strong. To help, EMC earlier this month completed its $1.1 billion acquisition of Data General Corp.
Ruettgers gave a candid status report on the merger.
Data General's midrange Clariion storage products are being folded into EMC's main product line. And Data General's Aviion servers are becoming part of an independent unit within EMC.
Ronald Skates, who had been Data General's chief executive, will help with the transition, then will retire. EMC reported this month that Robert Dutkowski, who had been with EMC since 1997, will lead the new server group.
In addition, EMC announced that Frank Hauck, who had been with EMC for nine years, will oversee the integration of Data General's storage division.
It won't be an easy task. The first order of business will be making Data General's services business profitable -- something Ruettgers said hasn't happened in Data General's history. Hauck's next step, Ruettgers says, will be to get the Clariion products into EMC's distribution and services units. In addition, Ruettgers plans to drop some unprofitable hardware products from the Data General line.
It remains to be seen how Data General will benefit EMC. But the acquisition was worth it, as it created about $1.3 billion in shareholder value, reports Amit Chopra, an analyst with Credit Suisse First Boston in New York.
Not counting any revenue from the acquisition, EMC will grow to a $10 billion company by 2001 from a $4 billion company in 1998, Ruettgers predicted. In another Ruettgers coup while out West, he made it a point to snuggle up to longtime partner Oracle in announcing a joint development operation.
Shared vision
Oracle announced this week that it will form an EMC Strategic Business Unit. It marks the first time Oracle plans an internal division to cater to any other company, other than the computer makers it already serves, including Sun and H-P. "Oracle and EMC share a vision ... and it's incumbent on everyone in this industry to work together," Ruettgers said.
Mike Rocha, an Oracle senior vice president, said he didn't know the exact amount of the investment in EMC. But as many as 24 engineers will be working on EMC-related projects from Oracle's Redwood Shores, Calif. headquarters, he said.
More announcements are planned between EMC and Oracle, Rocha says. The companies will announce in the next few months that they have jointly developed what Rocha says will be the "largest data warehouse in the world." He wouldn't provide further details.
Who knows? If Ruettgers can keep his West Coast edge, he'll be making the Oracle announcement with Ellison -- and perhaps even showing up Ellison's showmanship. |
