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

To: Fred Levine who wrote (12945)	8/4/2001 6:14:59 PM
From: Gus	Respond to of 17183

However, he left the impression that the immediate future was still grim. Grim for EMC. Grimmer for its rivals. They-win-some, EMC- wins-more may no longer be enough for EMC. Frank Hauck, EMC's head of sales and services, said market share, not price margin, is the top priority for his sales force. "They are not allowed to lose a deal over price without my permission," Hauck said. "... We're not playing for steak knives." Most price wars are started by technology laggers using price to catch up. As exemplified by the disk drive industry, those kinds of price wars can be go on for a long time. I think that enterprise storage is different because the cost of managing the data goes up faster than the decline in the cost per megabyte. This is a great opportunity to pick up lessons on the dynamics of price wars initiated by a technology leader which can land some decisive blows. Already, EMC has guided analysts to model 2003 based on a 50/30/20 hardware/software/service revenue breakdown. Assuming 90% gross margin on software and 35% gross margin on services, that works out to approximately 32% gross margin on hardware IF EMC wants to achieve its goal of 50% overall gross margin by 2003. In other words, EMC is not expecting much improvement in hardware pricing for the next 10 quarters despite the kind of new higher-margin products they have in the pipeline! Clearly, they are giving themselves wide latitude to go after their rivals who don't have the same kind of broad technology base that ultimately shows up in margin buffers like that provided by the software business. EMC is in very good hands. Check out this Bain article written in 1998 while the whole world was still reeling from the Asian economic crisis and the Russian meltdown. The Trick is to Be Prepared So how should today's executives cope with the dangers? Bain analyzed more than 375 companies to see how they performed before and after the most recent recession of 1990-91. *Several, such as Arrow Electronics, EMC, and Chrysler, used the recession to reverse declining fortunes and launch business trajectories that carried them forward for many years.* What were the lessons to be learned from these success stories? Our interviews and analysis identified a four point approach that is common to winners: 1) Strengthen the core business 2) Develop contingency plans before the turmoil hits 3) Act quickly without overcorrecting 4) Distill and disseminate wisdom from experience There is no substitute for experience. The problem is that only 35% of today's CEOs were in the pilot's seat during the last recession. Turnover rates at middle management levels have been even higher. Management teams have less experience working together than ever before, just when turbulence requires even greater teamwork. Seventy-five percent of senior executives fear that "managers have a false sense of security after seven years of economic prosperity." Companies are scrambling to codify the experience necessary to thrive in turbulence. Many are finding insights in the strategies of smaller companies that have to deal with extreme turbulence everyday just to survive. bain.com