EMC BREAK-EVEN POINT
3Q01 to 2Q01
              
              EMC
Period     Break-even
        
3Q01         $1.8B
4Q01          1.7B
1Q02          1.6B
2Q02          1.5B

If she means EMC's build-to-forecast model which 
generally takes 28 days, EMC is revamping this
model so that they can do this in around 14 days 
while improving quality control.  Currently, this
process consists of 8-10 days of component stress
testing, 8-10 days of general system stress 
testing, and 8-10 days of specific customer
system configuration stress testing. 

I don't think EMC will totally outsource the 
manufacturing process because the move to a 
contract manufacturer would be too disruptive.
Equally as important is the fact that the 
critical components of any disk array are
commodites.

Both the disk drive and the DRAM businesses are
commodity businesses with well-known boom and bust 
cycles matched by cycles of over-investment and 
under-investment.  This requires rigorous and 
proprietary quality control processes at the 
storage subsystem and storage network levels 
particularly since the storage subsystems and
the storage network serve as the foundation for
EMC's software products.  MR indicated that 
EMC ships an average of 12 pieces of software 
with its SAN compared to an average of 4 pieces
of software for DAS.

EMC attributed 1200 basis points of the gross 
margin decline from 47% to 30% to the decline in
sales volume.  It attributed only 500 basis points
to shifts in pricing and product mix. Regaining 
that lost business is the the crux of the 
near-term challenge for EMC.

They acknowledged that during 3Q01, IBM and 
Hitachi managed to expose a hole in EMC's product
line in the 1-2 terabyte market where EMC's TCO 
superiority matters less.  While they think this 
is a temporary situation, they are going to
aggressively counter IBM and Hitachi with new 
Clariion products. 

For example, Clariion's cache currently uses 2GB
Rambus memory which already has a clear road map
to 4 GB and 8 GB.  Note how EMC used new embedded
switch technology and larger cache to leapfrog 
Hitachi after it grabbed a narrow technical
lead.

MR acknowledged that he and Joe Tucci failed to 
adjust more quickly to a changing market.  He
also pointed to the weakening global economy, 9/11
and heightened competition as additional factors 
for EMC's biggest loss in its 22 year history.

Yet EMC's performance is not unique even after 
adjusting for the fact that storage has always been
the toughest business in IT.

Technology Bellwethers - Revenue Trends
Message 16505902

Storage Bellwethers - Revenue Trends
Message 16506158

All that said, Joe Tucci's comments are probably most 
useful for the investor.  He attributed EMC's success
in recent years to its ability to tap three wells of 
growth better than anybody else:

1) Application-driven growth.  
2) Technology upgrades.
3) Storage consolidation.

Right now, only storage consolidation is driving growth
with the two other growth drivers in a flat line.

Therein lies the opportunity.