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

To: Gus who wrote (12862)	7/10/2001 8:05:18 AM
From: GVTucker	Read Replies (2) \| Respond to of 17183

Gus, RE: In early March, EMC indicated that they reined in its orders at Emulex because they were still working through some HBA inventory so you already have a concrete idea of how fast they respond to inventory build-ups. If EMC reacted so quickly in early March, why was inventory higher at month end in the face of declining sales? Hey, I'm not saying that EMC is going to all of a sudden write off a CSCO-like $2.5 billion for the quarter end 30 June. What I am saying is that fact is that EMC was starting to let inventories get high last quarter. EMC is a company that is built for growth. When the opposite occurs, many growth companies have difficulty adjusting, to their detriment. Last year's 1Q, EMC also built up inventory in the face of a 1 quarter sequential decline in revenues, in expectation of higher revenue the rest of the year, a correct decision. This year, EMC built inventory in the face of a decline of revenue in the 1Q, but will apparently not have higher revenue, at least in the near term. It will be interesting to see the balance sheet for the quarter end 30 June.

To: Gus who wrote (12862)	7/11/2001 2:42:41 AM
From: Jacob Snyder	Respond to of 17183

Gus and GVTucker: re: potential EMC inventory writeoff: Any growth company, when demand suddenly falls off, is in danger of finding themselves with way too much inventory (and people, and everything else). What happened at Cisco is a horror story, and has everyone wondering who is going to do it next. Companies expecting 10%/Y growth in demand don't have that problem. Please correct me if I've got this wrong: In 1999, Cisco had a problem with getting enough components to satisfy exploding demand. So, they locked themselves into longterm contracts with component makers, to assure supplies for demand they expected to continue exploding. Instead, demand imploded. It was Cisco, not their component suppliers, who took the risk of inaccurately guessing future demand. In addition, those components are highly specialized, and can essentially only be used in the current generation of Cisco products. They have no value to any other company, and will be obsolete soon. These are the reasons why Cisco had to write off a year's worth of inventory. For EMC, most of the hardware that goes into their boxes are commodities (memory, disc drives), and near-commodities (Intel processors). The value-added is in the software, mainly, where excess inventory is not possible. Getting enough components was not a problem, even in boom times, so EMC had no need to lock themselves into LT contracts. It is the component-maker who takes the risk of being sized too big when demand falls off, not EMC. In addition, those components have many uses, so they have a resale value if EMC doesn't need what they have. And, what's true for EMC, should be equally true for NTAP. Thanks for the excellent discussion of this important issue.