RIVALS hounding EMC's market share
By Tim Mclaughlin
BOSTON, April 26 (Reuters) - EMC Corp., the data storage firm that only a few months ago seemed magic to investors who thought it was immune to a tech downturn, does not seem so invincible after the first quarter.
Not only was Hopkinton, Mass.-based EMC (NYSE:EMC - news) forced to slash its revenue forecast for the year, the company also lost some of its dominant market share to rivals IBM and Hitachi Data Systems, some Wall Street analysts said.
EMC claims it has gained ground and that failure is not an option in its take-no-prisoners sales culture. Besides elevating a tough new chief executive, EMC recently replaced its head of global sales, services and marketing with a company veteran known for heading off problems.
Meanwhile, EMC rivals have lined up comparable products at competitive prices in a bid to spoil EMC's decade-long romp in what has become a $50 billion-a-year industry.
``You don't have to buy just one company's story anymore,'' Forrester Research Inc. analyst Joe Butt said. ``You can look at a bunch of options. These storage firms are out there trading body blows, trying to cancel each other out.''
Companies under pressure in the current economic slowdown are having a tougher time justifying EMC's premium prices without first evaluating the alternatives.
``There are clearly transactions and situations where we are forcing the EMC offer to come down in price to be more competitive,'' said Linda Sanford, head of International Business Machines Corp.'s (NYSE:IBM - news) storage business.
FIGHTING FOR THE STORAGE SPACE
Claims of EMC vulnerability by executives at rivals IBM, Hitachi Ltd. and Network Appliance Inc. (NasdaqNM:NTAP - news) used to go unheeded, but investor confidence in EMC clearly has been shaken.
EMC's stock, which outperformed the S&P 500 for most of 2000 -- at times by as much as 80 percent -- has now dipped down to underperform that index by 20 percent.
Last week, EMC said first-quarter earnings rose 20 percent compared with net income growth of 51 percent last year. EMC sees only modest growth for the rest of 2001.
In addition, its gross profit margins -- the envy of the industry -- are expected to remain under pressure, Wit SoundView analyst Gary Helmig said.
First quarter gross margins were 55.1 percent, compared with 56.6 percent in the same period a year ago. Those could drop as low as 53 percent for the full year, EMC said.
That decline comes as competition is heating up.
IBM actually tracks the number of EMC customers that buy IBM storage. Sanford said at the end of last year, IBM sold to 52 percent of EMC's accounts, and now they sell some storage systems to 58 percent of EMC's customers.
``We had a nice growth spurt there,'' Sanford said.
Goldman, Sachs & Co. analyst Laura Conigliaro said in a research note she saw Hitachi growing faster than EMC off a smaller revenue base and waging an aggressive price campaign.
Hitachi Data, a unit of the Japanese electronics giant, now generates quarterly revenue slightly less than $500 million, enough to effect EMC's sales opportunities, too, Helmig said.
``Hitachi has gained significant traction during the March quarter,'' Helmig wrote in a note to investors.
Hitachi executive vice president Ron Gervenack said storage revenue surged by $300 million in the March quarter.
``It was a tremendous quarter,'' he said. ``...We owe a debt of gratitude to EMC for developing the idea that storage could be bought separate from servers.''
KING OF THE HILL
Joe Tucci, who assumed EMC's CEO post in January from Michael Ruettgers, dismissed claims by rivals that EMC is losing market share. He called their evidence ``onesie, twosie anecdotes.''
``Talk is cheap,'' Tucci said. ``... We're the king of the hill.'' EMC Executive Chairman Ruettgers remains an active force in the firm's operations, but Tucci has become its ``get-it-done'' leader.
Inside and outside EMC, Tucci carries a reputation for being blunt and hard-nosed. In the field, Tucci said he meets with as many as eight customers a day in one-on-one meetings, swings by local EMC operations for ``fireside chats'' and ends the day with a group dinner.
``From everything I've been told, Ruettgers is a softie compared to Tucci,'' said Rod Mathews, an executive at Network Appliance who gathers intelligence on competitors.
Mathews, who interviews EMC sales people defecting to his firm, said EMC's hard-driving sales culture may work against the company in tough economic times, as sales reps bail out rather than get fired.
``People aren't waiting to get axed after they miss their sales quota,'' Mathews said. ``They're leaving under their own terms.''
EMC confirmed last week it replaced Michael Ruffolo, executive vice president of global sales, services and marketing, with EMC veteran Frank Hauck, who will be the third person to hold that position in less than two years.
``The combination of the slowing economy and the transfer of power ... will present some significant challenges to EMC. It's definitely something to watch,'' said John Clavin, EMC's 30th employee and now executive vice president of marketing at StorageNetworks Inc. (NYSE:STOR - news), a small rival backed by an EMC co-founder.
Even Tucci said the power transfer between him and Ruettgers was like exchanging a bottle of nitroglycerin.
``A company is a volatile and precious item,'' Tucci said.
Goldman's Conigliaro, however, said the real problem for EMC was the economic slowdown, rather than IBM or Hitachi.
``EMC is still the company to beat in terms of size, sales staff, breadth of systems, software and service,'' she said. |
