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

To: charlief who wrote (13265)	10/2/2001 9:24:54 AM
From: Gus	Respond to of 17183

Doubt it. 1) Lou Gerstner is retiring sometime during the first half of 2002. His handpicked successor is Sam Palmisano, the architect of IBM's brilliant services strategy. Although he is an IBM lifer, he is likely to take a good hard look at IBM's PC operations and its disk drive operations. Going by Maxtor's latest earnings report, IBM's disk drive operations probably have high single-digit or low double-digit gross margin with the successes of its mobile drive program offset by the persistent problems at its enterprise drive program and the chronic lack of scale of its desktop drive program. 2) Any IBM and EMC deal would have a hard time being approved by regulators since it would immediately give IBM around 75% of the mainframe storage market and 40+% of the storage management software market to go with its mainframe monopoly and 30+% share of the mainframe tape storage market. For reference, the 1997 reseller agreement between IBM and StorageTek only combined IBM's 34% market share with StorageTek's 12% share of the mainframe storage market yet it still attracted intense regulatory scrutiny. 3) IBM's disk drive division is in deep doo doo and starting to seriously lag EMC's disk drive suppliers -- Seagate and Fujitsu -- in terms of technology and manufacturing scale, almost always a fatal combination in a scale business. Hitachi's disk drive operation is in worse shape. Because disk drive capacity and data transfer rates are key variables in disk array system design, IBM's persistent disk drive manufacturing problems will start to impact its disk array business soon and accelerate the problems at its Tivoli software unit, which has been losing market share for the last two years. For instance, thanks to Seagate and Fujitsu, EMC has a relatively smooth path from 180 GB to 480 GB and from 15k rpm to 22.5k rpm while IBM is stuck with its 36GB drive program and just managed to get its 10k rpm drive program operating at acceptable yields. IBM's overall share of the CY2000 disk drive market was around 13% with a 25% share of the enterprise drive market and around 45% of the mobile drive market. Seagate's overall share of the disk drive market was around 22% with around 45% of the enterprise drive market. Fujitsu's overall share of the disk drive market was around 13% with around 11% of the enterprise drive market. Hitachi's overall share of the disk drive market was less than 3%. There's also a good chance that the combined Maxtor/Quantum and Seagate will aggressively launch their mobile drive blitzkrieg during the changing of the guard at IBM next year especially as IBM's disk drive problems continue to grow. Maxtor/Quantum and Seagate have no share of the fast-growing mobile drive market despite the fact that both companies now control over 50% of the high-volume desktop market and close to 60% of the high-margin enterprise drive market. In typical disk drive industry fashion, no market share advance by any player is accomplished without great cost and without great violence to income statements. 4) IBM's high-end Shark actually consists of 2 mid-range R6000 general purpose Unix servers in one chassis and IBM's own statements indicate that they still have not developed the ability to support Solaris, HP-UX and W2K very well. Considering the way IBM is practically giving it away, Shark has thrived largely on IBM's ability to sell its latest mainframes at a rate of around 100 a month since its introduction last December. The pending Compaq-HWP merger and ongoing dissolution of the Compaq-IBM alliance announced only last year create more holes in IBM's product line-up and, arguably, increase the chance that IBM will be changing storage platforms......again. This would make it the 5th or 6th time in the last 7 years.