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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: JDN who wrote (9847)	4/17/2000 10:20:00 AM
From: jad	Read Replies (1) \| Respond to of 17183

EMC earnings preview EMC, the number-one maker of computer data-storage systems for corporate networks, will report first-quarter earnings on Tuesday. IDEAglobal.com thinks EMC's recent expansions with acquisitions and new products should help it beat expectations by a narrow margin. EMC [EMC] is expected to have earned 29 cents profit in the first quarter, up from 22 cents in the year-earlier period. Whisper numbers put earnings as high as 32 cents. EMCs biggest market is hardware that stores and retrieves memory from computer mainframes, but it also makes data-storage software and provides services. EMC's quarterly sales growth averaged more than 30% over the past year. With the addition of Data General, purchased in August 1999 and adding 23% to EMC's worldwide workforce, the company could conceivable set a new record in sales growth. With the new employees, EMC projects that annual revenue will rise to about $12bn by the end of 2001, a 50% increase from the $6bn generated in 1999. Before the purchase of midrange-storage-systems maker Data General, about 35% of EMC revenues came from sales to large corporations, but the company considered such a narrow focus to be limiting. Now it's working to expand its customer base to include small and mid-sized companies. Both PC-making rivals Dell [DELL] and Compaq [CPQ], selling cheaper machines than EMC, are targeting the $10bn-a-year small to midsize company market. Access to Data General's storage and server equipment will help EMC push into that market. Smaller companies need storage equipment just as much as large corporations, but can't afford to spend the money on the high-end products EMC traditionally focused on. Software sales should also help boost overall revenue and margins in the quarter. EMC's been rotating its focus, spending millions developing software, which has higher profit margins than hardware. The software runs on EMC's storage systems, the company's core product. There are three major risks EMC will have to face in maintaining gross margins, currently in the low-50% area -- heavyweight rivals offering similar products, component-price volatility and the company's plan to shift product lines. On the hardware front, EMC's involved in a heated race with pc-maker IBM [IBM]. IBM last year released a high-capacity storage system called the Shark, considered a direct attempt to wrest the number one spot grabbed by EMC in the mid-90's. The high-capacity storage market's projected to generate sales of $46bn by 2003, a 55% rise -- so there will should be enough room for both firms to profit. But in the past two years, computer makers Dell [DELL] Compaq [CPQ] and Hewlett-Packard [HWP] have all joined the race. But according to estimates by research-house IDC, EMC is continues to gain market share, apparently unfazed by the competition. The company currently controls 27% of the market for separate storage systems that contain multiple hard drives, versus the 24% market share it had in 1998. The closest trailing competitor is Compaq with 13% and then IBM with 11%. EMC controls half the mainframe market, once dominated by IBM, while IBM had 28% in 1999. But IBM is once again creeping up on EMC, offering the Shark at lower prices than EMC's systems in an attempt to gain customers. The PC-maker hired 1,000 salespeople in a $400m effort to sell the Shark, taking direct aim at EMC. So far, though competition has increased, there's been little pricing pressure overall -- but with so many competitors entering the market, that could change quickly. Despite its high growth rate, EMC has stockpiled sizeable free operating cash -- that's a major plus in this current market environment, unsympathetic to technology firms with searing cash burn rates as they sacrifice short-term profitability for long-term gains. EMC was punished with a 6% slide in its stock price on January 26 when it announced fourth quarter revenue rose 21% to $1.88bn, less that forecasts which ranged as high as $1.97bn. IDEAglobal.com thinks EMC's recent price weakness is simply a factor of general market volatility. Look for EMC to rise to $116 in a week or two, from $113-7/8 at 14:00 GMT on Monday.