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

To: jhg_in_kc who wrote (12580)	4/10/2001 11:38:36 PM
From: Gus	Respond to of 17183

STOR is one of those lucky SSPs that managed to get their IPO in before the crash. As a result, they still had $390M in cash/cash equivalents as of the end of last year despite their negative free cash flow (-$106M for FY2000) and the massive capital expenditures it must make to be competitive with the likes of Exodus, IBM, EDS, Computer Sciences, ATT, Worldcom, Verizon, etc. Exodus' 2000 capex was $1.5B. Both EDS and Computer Sciences already have plans to increase their 1+M square foot global data centers by at least 50%. Both ATT and Worldcom plan to have 2M square feet of data center space by the end of the 2000. IBM is planning to spend $4B to support its $30+B services revenue business. I frankly don't think its $1B market cap is sustainable since it sits on top of only $50M in revenues at a time when the emerging consensus is that the xSP market will probably be much bigger than anyone thinks but will take much, much longer to develop. Consequently, I expect that it will merge with other publicly-traded xSPs or pool its resources with the likes of GiantLoop to add more heft to its balance sheet and increase its staying power. Note that both STOR and GiantLoop are top-heavy with former EMC executives and engineers. GiantLoop is also fresh from a funding round in which it raked in about $130M from VCs. With that kind of uncertainty, I doubt that their software will have much traction considering the large number of variables that must be constantly managed and supported in storage networking -- HBAs, optical cables, switches, disk arrays, operating systems, clustering services -- and the kind of mission-critical databases and applications that layer on top of those deterministic networks. For reference, EMC spent more than $1B on its interoperability labs during the 90s and it expects to spend $2.5B more -- with heavier emphasis on software interoperability -- during the next five years. IBM is the only other company that has the resources to invest that much on interoperability but even Big Blue still doesn't have the kind of breadth and depth. Here's a March 29 Gartner report on the heavy investments that EMC is also making in product support to further widen its lead: *Customers are demanding one-stop-shopping for services around their storage needs,* and EMC's newly integrated services organization is beginning to position the company to play that role. Among EMC’s key service differentiators: - Its ability to efficiently handle product changes in a customer environment through a Change Control Automation system. The automated system and dedicated support team handles up to 1,800 product changes per week globally -- more than 99 percent of which are completed correctly the first time within the customer-specified timeframe. - Its highly effective automated remote hardware diagnostic system that enables installed storage systems to "phone home" to an EMC Support Center to report a list of hardware diagnostics. EMC holds "a strong lead" in remote problem resolution with 98 percent of hardware service calls received via remote monitoring tools. - Its use of an Intelligent Contact Management System, developed by Cisco, which routes and manages customer support calls based on agent availability and skill set through universal queue management, enabling EMC to deliver consistent and optimum support to customers on a 24x7 basis. EMC's unique service philosophy is another quality that sets the company apart from all others. *The company has established a "no finger pointing" policy when dealing with enterprise-wide problems that may or may not be related to EMC solutions, Gartner wrote.* "This 'guilty until proven innocent' approach has endeared EMC not only to its customers, but also to its vendor and service partners that benefit from EMC’s technical support expertise." emc.com