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

To: Gus who wrote (12837)	7/9/2001 8:01:56 AM
From: GVTucker	Read Replies (1) \| Respond to of 17183

Gus, RE: EMC is developing a reseller channel for Clariion and the risk of forecasting failures are higher there, but Clariion is still only 7% of revenues. A buildup of inventory to support a reseller channel for a subsidiary that represents 7% of revenue does not justify inventory moving from about 40 days of hardware sales to about 70 days of hardware sales. That increase is significant. 1) Inventories are stated at the lower of cost (first in, first out) or market, not in excess of net realizable value 2) In addition, EMC's revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and its backlog at any particular time is not necessarily indicative of future sales levels. This is because: - EMC assembles its products on the basis of its forecast of near-term demand and maintains inventory in advance of receipt of firm orders from customers - EMC generally ships products shortly after receipt of the order - customers may reschedule orders with little or no penalty Very similar boilerplate language in Cisco's 10-K didn't prevent a significant write off. Note that EMC builds its products partially on the basis of a forecast. That forecast can prove incorrect, especially is there is no penalty for order rescheduling.

To: Gus who wrote (12837)	7/9/2001 12:33:49 PM
From: Douglas Nordgren	Respond to of 17183

...EMC can readily adjust the current quarter's WIP to compensate for any logjam during the last quarter. I think I can readily adjust to that.<g> Thanks Gus for shedding some light on the inventory non-issue. Sometimes template glancing at the numbers, as the article writer appears to have done, can lead to erroneous conclusions. Thank goodness there's a dyed-in-the-wool empiricist hanging about. Douglas

To: Gus who wrote (12837)	7/18/2001 9:57:46 AM
From: Gus	Read Replies (2) \| Respond to of 17183

I/O, I/O it's off to war we go....... INVENTORY Succeeding Quarter's End of Purchased Work-in- Finished Hardware Quarter Parts Process Goods Total Sales 1Q2000 $ 69M $ 436M $ 174M $ 679M $1,516M 2Q2000 55M 493M 209M 758M 1,647M 3Q2000 50M 620M 199M 869M 1,816M 4Q2000 63M 702M 260M 1,025M 1,564M 1Q2001 61M 708M 299M 1,068M 1,226M 2Q2001 - - - 1,074M - EMC indicated that it had more than $400M worth of deals -- 'hundreds of deals' -- deferred at the last minute. That works out to at least $250M in hardware, at least $100M in software and at least $50M in service revenue based on last quarter's revenue mix. Half of 810 basis point sequential decline in gross margin can be attributed to revenue shortfall created by those deferrals with the other half presumably tied to pricing actions and their sweep the floor strategy, which includes what EMC euphemistically calls "trade-ins." The inventory number suggests that EMC is going to keep on pressing the offensive. Joe Tucci referred to the 'sweep the floor' strategy that they're using to exploit the major trend towards storage consolidation. Software and Services will continue to grow faster than Hardware. Here's a comparison between EMC and Veritas. Veritas' average deal size is around $130,000 and EMC's average deal size is probably much higher so the results of the two companies provide a good look at what's happening out there. Note that the much bigger EMC Software has consistently grown faster than Veritas in the last 3 quarters -- 42% to 31% in 2Q2001 alone. Everybody else is losing market share to these two vendors. STORAGE SOFTWARE Veritas Y/Y (%) EMC Y/Y (%) 1Q1999 $ 56M 81% $ 155M 135% 2Q1999 93M* 145% 179M 83% 3Q1999 158M 243% 207M 75% 4Q1999 191M 260% 281M 72% 1Q2000 204M 264% 270M 74% 2Q2000 225M 142% 350M 96% 3Q2000 257M 63% 332M 60% 4Q2000 301M 58% 483M 72% 1Q2001 309M 51% 468M 73% 2Q2001 294M 31% 498M 42% STORAGE SERVICES Veritas Y/Y (%) EMC Y/Y (%) 1Q1999 $ 16M 100% $ 72M 227% 2Q1999* 21M 114% 82M 148% 3Q1999 26M 136% 89M 56% 4Q1999 35M 150% 119M 53% 1Q2000 40M 150% 116M 61% 2Q2000 51M 143% 134M 63% 3Q2000 60M 131% 161M 81% 4Q2000 69M 97% 200M 68% 1Q2001 78M 95% 232M 100% 2Q2001 97M 90% 232M 83% *Seagate Software NMSG acquisition closed. NIS (SAN+Connectrix+NAS) continued to grow to 58% of Storage Hardware; although, it declined by 19% sequentially from $883M in 1Q2001 to $714M in 2Q2001. This sequential decline, however, was less than the 22% overall decline in Storage Hardware from $1.564B in 1Q2001 to $1.226B in 2Q2001. NIS/Storage Hardware Storage NIS/Storage NIS Hardware Hardware 1Q2000 $ 323M $1,267M 25.5% 2Q2000 458M 1,516M 30.2% 3Q2000 567M 1,647M 34.4% 4Q2000 770M 1,816M 42.4% 1Q2001 883M 1,564M 56.5% 2Q2002 714M 1,226M 58.2% Lastly, 3Q looking worse than 2Q. No 4Q guidance. EMC appears lock and loaded for bear.