Compaq, IBM will find it tough to dethrone EMC
July 06, 2000
by Stefani Lako Baldwin
NEW YORK -- EMC Corp. (EMC) is king. Long live …? If Compaq (CPQ) and IBM (IBM) have their way, today's announcement -- that they've joined forces and plan to carry each other's storage and server systems -- will signal a market coup. Analysts, however, see the road to regicide fraught with obstacles.
"I don't think [this announcement] changes the fundamental point: EMC is still a leader," Chase H&Q industry analyst William Lewis told UpsideToday. (See "$1B deal for Compaq, IBM.") In fact, Lewis sees today's pronouncement as a spotlight on EMC's dominance. "It highlights EMC's position that two competitors have come together to take [it] on," he noted.
And they're taking EMC on with some serious cash. In the $1 billion dollar deal, Compaq agreed to incorporate IBM's "Shark" Enterprise Storage Servers and select Tivoli systems management software into its portfolio. IBM, in turn, will incorporate Compaq's StorageWorks modular array storage systems and software. The companies plan to use the agreement to create an open storage network standard whereby customers can utilize a single storage system.
Strong allure
Financial services firms, airlines, large manufacturers and other companies in the Global 2000 rely on external data storage systems to save, re-examine and mine customer and business data. With so much interest by big companies, it's easy to understand the allure of this marketplace. IBM, Compaq, EMC, Sun Microsystems Inc. (SUNW), Hitachi (HIT), Hewlett-Packard (HWP) and others are fighting for a piece, hopefully a big piece, of the estimated $16.6 billion data storage market. It's a market that IDC Consulting estimates will grow to $48 billion within the next three years.
The Compaq-IBM alliance hopes to catapult its way to No. 1 in that market, according to Darren Thomas, vice president of multivendor storage products at Compaq.
It may not be easy, however.
A weak product
Part of the problem, analysts point out, is that Shark is not a great product. Charlie Wolf, who covers Compaq and EMC for UBS Warburg called Shark, "a relative failure." And Lewis described Shark as "somewhat of a disappointment."
Walter Razner, vice president of marketing and strategy at IBM, conceded that Shark has had some problems in rolling out advance functions. Such functions were due in March but failed to appear due to testing issues, he said. IBM hopes to roll out the new functions this month and in the autumn, moves that Razner believes will stem the criticism tide.
Whatever your opinion of Shark, IBM and Compaq assert that a pool of fish could be a mighty force against the industry leader. Indeed, they are actively looking for other industry players such as Hewlett-Packard, Sun Microsystems and Hitachi to join them in creating an open standard.
Calling all competitors
"We open our arms to any competitors," said Compaq's Thomas.
Lewis said this consolidation trend likely would continue. "Everyone is tired of EMC taking business from them," he said.
Wolf pointed out that agreements between competitors in the storage market are not new. And if history is any indicator, the Compaq-IBM strategy may do little. Last year, said Wolf, Hewlett-Packard dropped EMC as its provider and entered an agreement with Hitachi.
"Nothing changed," he noted.
The Street wasn't kind to data storage firms today. Compaq closed down 0.75 percent at $24.81. IBM finished the day at $101, down 3.8 percent. EMC fell 1.49 percent to $74.50. Hewlett-Packard fell 0.84 percent to close at $118.62 and Hitachi was down 3.69 percent at $133.75. Only Sun Microsystems rose, 0.94 percent, to close at $87.83. Analysts said that these drops were not directly related to the Compaq-IBM announcement. Rather, the stocks fell along with the rest of the computer market after warnings by BMC Software (BMCS) and Computer Associates' (CA) implied that this sector may be going soft.
Stefani Lako Baldwin is a financial writer for UpsideToday. Reach her at sbaldwin@upside.com.
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