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

To: Bill Fischofer who wrote (10217)	5/15/2000 7:40:00 AM
From: John Carragher	Respond to of 17183

May 15, 2000 EMC Halts Disk-Drive Deal with IBM As Part of Patent Dispute Settlement By DANIEL GOLDEN Staff Reporter of THE WALL STREET JOURNAL EMC Corp. said it has dropped its commitment to buy $3 billion worth of disk drives over five years from International Business Machines Corp., as part of a settlement of patent litigation between the two companies announced on Friday. The back-away by EMC, one of the world's largest buyers of disk drives, is a blow to IBM's strategy of expanding sales of computer parts. It comes at a time when IBM's revenue has been slumping, including an 11% first-quarter decline in sales of components such as disk drives, monitors and chips. A disk drive is the basic long-term memory-storing device in computers. EMC, of Hopkinton, Mass., uses huge numbers of the devices as the largest maker of storage systems for big companies. In March 1999, EMC agreed to buy $3 billion worth of disk drives from IBM over the next five years. EMC spokesman Mark Fredrickson said purchases from IBM since that agreement haven't kept pace with the $3 billion goal. IBM announced the agreement last year, along with other long-term parts-buying arrangements with Dell Computer Corp. and Cisco Systems Inc. IBM spokesman Rob Wilson said the agreement with EMC "remains operative," but he said the $3 billion goal "was their number, not ours. It was what they thought they would buy. It's our understanding that EMC still remains interested in buying our technology. As to how much they'll buy, it's up to them." IBM has about $90 billion in annual revenue. During discussions with IBM over the patent litigation, Mr. Fredrickson said it became clear that the $3 billion target was unrealistic, because of IBM's difficulty meeting quality standards and production deadlines on high-end disk drives. The prior agreement, he said, was replaced with a standard contract that does not include a specific sales target or penalties for failing to meet it. He said IBM can no longer cut off EMC's access to IBM patents if the sales target isn't reached. IBM paid an undisclosed sum to settle the long-running patent litigation involving computer technology. Mr. Wilson described the amount as "negligible" while Mr. Fredrickson said it was "not material but significant." IBM also retains the right to use technology from Data General Corp., a company acquired by EMC, which started the dispute by suing Big Blue over alleged patent infringement six years ago. IBM disk-drive sales in the first quarter were down $350 million from the year-earlier period. Last week, IBM Chairman Lou Gerstner acknowledged that the company was having production difficulties in highend disk drives. "It cost us in the first quarter, and it's going to cost us in this quarter," he said. The $3 billion target was set at the same time the two companies reached a four-year patent cross-licensing agreement. Part of the arrangement was that if EMC failed to buy enough disk drives, IBM could shorten the length of the cross-licensing agreement. Since IBM holds tens of thousands of patents, and EMC has fewer than a thousand, Mr. Fredrickson said EMC had faced a significant risk that it would lose access to key technology. Now, Mr. Fredrickson said, EMC no longer faces that problem. As part of the patent litigation settlement, the two companies extended their patent cross-licensing agreement for an extra two years, through 2005, as well as agreeing to a five-year moratorium on patent infringement lawsuits. In its lawsuit, Data General claimed that IBM's widely sold AS/400 computers violated several of its patents. After EMC bought Data General for $1.2 billion in October, IBM sued EMC. It alleged that EMC had committed fraud by secretly transferring the disputed patents to a shell company, just before acquiring Data General, so IBM would not have access to them under the cross-licensing agreement. Write to Daniel Golden at dan.golden@wsj.com

To: Bill Fischofer who wrote (10217)	5/15/2000 10:16:00 PM
From: jhg_in_kc	Read Replies (3) \| Respond to of 17183

Bill, I found this post by Down South on NTAP thread. He sees NTAP eating into EMC's margins. what do you think? <<<From: DownSouth Monday, May 15, 2000 7:30 AM ET Respond to Post # 3264 of 3284 ...If you have not read "The Innovators Dilemma", I recommend it. I believe it describes the EMC/NTAP situation. Keep in mind that NTAP's competitive advantage is based not only on the NAS concept but their patented file layout (WAFL), their proprietary, specialized OS (ONTAP), and the innovations built upon these "open proprietary" innovations, such as SNAPSHOT/RESTORE, soft failover clustered configurations, etc. NTAP's architecture is basically a very efficient software package which runs on commodity hardware. Unless EMC can match the performance/reliability/cost of NTAP's architecture, their NAS offering will, similarly to DEC and WANG's PC product life cylce, take the following course: 1. The first year or two EMC will sell great quantities of their NAS product to their installed base. 2. The demand from their installed base will diminish rapidly as their customers meet their short term needs. 3. In competitive situations outside their installed base, EMC will have to cut margins to the bone to approach the price/performance of NTAP. EMC will not collapse because of NAS. They will, instead, focus on their storage management software where margins are tremendous, and NTAP will become a file system that can be included in an EMC-managed storage network. What will suffer is EMC's growth rate as NAS continues to grow at a rate 3-4x EMC's rate. All my own opinion, of course, and its worth what you paid for it <g>.>>