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

To: gmccon who wrote (11796)	1/8/2001 4:10:57 PM
From: techtonicbull	Read Replies (1) \| Respond to of 17183

So why wasn't the PE too high in March 2000? Now it's too high? Make up your mind!

To: gmccon who wrote (11796)	1/8/2001 5:01:54 PM
From: Gus	Read Replies (1) \| Respond to of 17183

EMC's exposure to dotcoms is about 10% of revenues. Most of them are generally made to companies funded by venture capital firms who standardized early on EMC's platforms because they understood these datacenters were eventually going to be consolidated. Clearly, the consolidation of datacenters with the same storage core was viewed as an essential part of the business plan and a major competitive advantage. EMC's E-Infrostructure program recently reached the 200th member milestone. This is a link to a sample of EMC's exposure to dotcoms. emc.com Clearly, Y2K-related spending and dotcom spending accounted for significant surges in the revenues of many infrastructure companies. That is why the traditional NASDAQ superpowers -- INTC, MSFT, CSCO, DELL -- became the four horsemen of the internet -- CSCO, EMC, ORCL, SUNW -- during the latter stages of the 90s. Clearly also, the evaporation of more than $800 billion in market capitalization as a result of the dotcom meltdown will affect infrastructure spending from that sector. However, Global 2000 spending is expected to more than pick up the slack they start to move their internet strategies from the pre-Y2K testing stages to the post-Y2K deployment stages. GE, for example, disclosed in early October 2000 that it was currently in the process of using the internet to cut at least $12 billion in operating costs over an 18 month period. To appreciate the degree of difficulty and magnitude of this initiative, consider that GE's net income in its most recent fiscal year was $10.7 billion on revenues of around $112 billion. Message 14557263 Now, GE participates in 12 industry groups as the number one or number two player so if the most efficient player in an industry becomes leaner and meaner then that naturally means that the other industry players have to try to keep up or risk getting swept under. Keep in mind that economic down cycles disproportionately favor the strongest players which can acquire market share in the marketplace or through acquisitions. Lastly, EMC's EPS growth rates during the last 1, 3 and 5 years are 52%, 33% and 27% respectively. This can be attributed primarily to the rapid growth of EMC Software which went from less than $25 million in 1995 to $822 million in 1999. SSB estimates that EMC will book about $410 million in software revenues for 4Q2000. That means that, on an annualized basis, EMC Software was already at the $1.6 billion run rate at the end of 2000. These are highly visible revenues with 90% gross margins from a large and diverse customer base with a 99% retention rate. Aside from clearly establishing EMC as the clear technology leaders, software also leads to more hardware sales. Combined, the potent code and iron product mix is fueling the acceleration in earnings growth as the company gets bigger. That should put the issue of PEs in better context since very few technology companies *of EMC's size* still have the ability to chop its PE ratio by more than half year over year. For reference, note that only 4 companies in the history of the software industry have generated over $2.5 billion in annual software revenues. These companies are IBM, Microsoft, Oracle and Computer Associates. EMC is currently growing faster than any of them and is poised to join that elite club in the next two years.