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

To: DownSouth who wrote (10379)	6/7/2000 9:31:00 PM
From: Yamakita	Read Replies (2) \| Respond to of 17183

Rule Maker: Will EMC Be the Next Rule Maker? June 7, 2000 ____________________________________________ By Matt Richey Hey, Fools! Tonight, we're announcing several new developments that I think you'll find pretty interesting. By early August, we will potentially be adding a new Rule Maker to our portfolio. And to get that process rolling right now, we're asking for your help in choosing five companies for our buy candidate list. Today's report focuses on one potential candidate, EMC Corp. (NYSE: EMC). The other candidates will be sorted out according to five polls which are linked at the end of today's column. Enterprise storage powerhouse EMC is one of the companies most frequently cited as a Rule Maker and yet not included in this portfolio. It's a shame, too, because EMC has been a seven-bagger since this portfolio's inception a little over two years ago. In our Research Report on EMC, Fool Analyst John Del Vecchio writes, "With exceptional customer retention rates and satisfaction, a 35% market share, innovative software products, and the acquisition of Data General, EMC is well positioned to benefit from the boom in enterprise storage demand. The Internet and e-commerce industries have created tremendous demand for companies to store, access, and utilize the vast amount of data being collected in the Net economy." About EMC's competitive position, John adds, "The company's primary competitive advantage is its ability to deliver high-quality, fault-tolerant enterprise storage systems that function in a diverse computing environment. In addition, these systems are supported with advanced software systems and superior customer service." If you're looking to get up to speed on EMC's business, including the new world of Storage Area Networks (SANs), I strongly endorse John's report. In the just completed first quarter, the company's financial performance landed it a position in the top tier of our Rule Maker Master List. Whose list is this, you ask? Yours. Mine. Everyone's. Whenever anyone posts a RM Ranker analysis on our Rule Maker Companies board, that analysis becomes part of the list. One of the coolest aspects of the Rule Maker community is our system of Fool review. Like scientists and their peer review process, Fools on our Rule Maker Companies board post their individual company analyses for inspection, verification, and -- most importantly -- shared learning. The result is our RM Master List, a compilation that now includes an amazing 250 some-odd company analyses -- all posted within the past year. The list is updated and re-sorted on a weekly basis (and linked on the right side of this page) so that Fools can quickly and easily keep tabs on which companies are ascending the throne of Rule Makerhood. Yesterday, just such an event took place, as EMC joined the elite class of top tier Rule Makers. EMC has long been considered the market leader in the enterprise storage industry. Now, the company's most recent quarterly financial results qualify it as a bona fide Rule Maker, according to an analysis by Lance Robinson, better known as TMF Tribe. Tribe crunched the numbers on EMC's first quarter results and came up with a Rule Maker score of 50 out of a possible 61 points. Anything above 50 qualifies a company as a top tier Rule Maker and places it among a select group of high margin, cash rich stalwarts. EMC's first quarter results were exactly what you'd expect of a first-class Rule Maker. Here's a snapshot of the results utilizing our usual financial RM Criteria: -Q1 sales of $1.8 billion -Sales growth of 22.9% -Gross margins of 56.6% -Net margins of 18.2% -Cash-to-debt of 8.85 -Flow Ratio of 1.70 -Cash King Margin of 19.4% With the exception of the Flow Ratio, that's an exceptional financial scorecard. Even more interesting is the direction of these metrics. We've always said that with Rule Makers direction is more important than location. EMC is a case in point on that rule. Check out this company's business momentum over the past year: -Gross margins up 8.3 percentage points -Net margins up 3.2 percentage points -Cash-to-debt improvement of 209.8% -Flow Ratio down 29.0% -Cash King Margin up 5.6 percentage points That, Fool, is about as good a set of financial direction metrics as you'll ever witness. On the improvement in the Flow Ratio, John Del Vecchio commented, "An improving Flow is certainly a positive sign for EMC. Its traditionally high Flow Ratio has been a thorn in its side for investors discerning whether or not it is a true Rule Maker. There is no doubt, however, that EMC makes some rules in the storage business."