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

To: JDN who wrote (10664)	7/19/2000 4:36:01 PM
From: VFD	Read Replies (1) \| Respond to of 17183

JDN, Up over 4 points on a down day. Not bad. biz.yahoo.com Morningstar.com EMC's Acquisition of Data General Is Paying Off By Joseph Beaulieu EMC (NYSE: EMC - news) appears to have resolved the only problem that has been ailing the company--disappointing results for the Clariion midrange server business it acquired with its late 1999 acquisition of Data General. While valuation remains a modest concern, investors can be very relieved that EMC appears to have overcome the one real operational difficulty facing it, and that growth appears to be once again accelerating after a brief lull. The key to the strength of the June quarter, reported Wednesday, was 30% revenue growth in the company's Clariion line of midrange storage servers. In the March quarter, 38% revenue growth in EMC's core business (excluding Data General) was diluted by a small decline in the Clariion line and a big decline in Data General's server business (which EMC is de-emphasizing). As a result, total top-line growth came in at a modest 23%. In the June quarter, however, 44% core EMC revenue growth was supplemented by Clariion growth of 30%, resulting in 43% total storage revenue growth. While this growth was diluted by a planned decline in Data General's server business, that business is coming to represent a decreasingly significant portion of EMC's total revenue. The company increased total revenue by 30% in the quarter. With the Data General problems seemingly behind the company, management raised its guidance for total top-line growth from 25% to 30%, and for storage revenue growth (excluding the de-emphasized Data General server business) from 35% to 40%. Growth in the storage hardware and software market remains white-hot, and is unlikely to cool anytime in the near future. While competition may eventually become a more important issue for EMC, companies like IBM (NYSE: IBM - news) and Sun Microsystems (Nasdaq: SUNW - news)--despite all their talk--are throwing up very little resistance to the EMC juggernaut. EMC's lofty share price isn't a deal killer--if any company is worth 85 times next year's earnings estimates, EMC is. However, prospective buyers need to at least be aware of the valuation risk that these price levels entail. Investors willing to accept this valuation risk could be very well rewarded if the company continues to turn in results of this caliber. Joseph Beaulieu can be reached at joseph_beaulieu@morningstar.com.