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

To: Proud_Infidel who wrote (13733)	1/11/2002 8:31:16 AM
From: BWAC	Read Replies (1) \| Respond to of 17183

Just the options week bs getting started up a few days early this month.

To: Proud_Infidel who wrote (13733)	1/14/2002 3:54:31 AM
From: Gus	Read Replies (1) \| Respond to of 17183

$800M is in the process of coming out of EMC's cost structure as they rebuild their sales volume. The earnings leverage is there if you look at the impact on gross margins of EMC's fastest growing businesses -- Software and Services. The tables below show that the gross margin impact of these two units can contribute anywhere from 21 to 32 to 38 gross margin points depending on EMC's execution. IMPACT OF SOFTWARE ON EMC's GM (assumes 85% Software Gross Margin) 20% of Sales - (0.20x0.85) - 0.17 GM 25% of Sales - (0.25x0.85) - 0.21 GM 30% of Sales - (0.30x0.85) - 0.26 GM 35% of Sales - (0.35x0.85) - 0.30 GM IMPACT OF SERVICES ON EMC's GM (assumes 40% Services Gross Margin) 10% of Sales - (0.10x0.40) - 0.04 GM 15% of Sales - (0.15x0.40) - 0.06 GM 20% of Sales - (0.20x0.40) - 0.08 GM For example, assuming that EMC can make Software come in at 30% of Sales and it can make Services come in at 15% of Sales, EMC can afford to keep their Hardware gross margin at 33% AND still hit their 50% GM target--(0.55x0.33=0.18) since Software and Services are already providing 32 gross margin points. Note the way that EMC uses Services and the potential leverage if they can drive their own costs faster. Break/Fix type of services beyond the standard 2-year warrantly for hardware are generally kept to break-even to maximize customer satisfaction, but Migration Services and Consulting are more profitable and growing faster. Disaster Recovery, for instance, is part of a larger Business Continuance strategy that typically involves the consolidation of data centers. Data Center Consolidation requires a lot of planning and ultra-reliable migration services. EMC has the most experience in migrating data as a result of its consistent ability to gain market share over the last 11 years so most of the Business Continuance players usually partner with EMC. The guidance that EMC has provided regarding their software business is that they are selling an average of 12 software products per networked storage deployment compared to an average of 3 software products for their traditional storage deployment. To appreciate the significance of this guidance, consider that EMC already controls 39% of the Networked Storage market so its customers are more likely to use its AutoIS management framework to manage the systems of other storage vendors. For example, Home Depot uses both EMC and HDS storage, but it has already licensed 50 different copies out of EMC's 35 or so software products to hit capacity utilization rates that have been measured at 90% so it is more likely to use more EMC software than HDS software to manage its HDS arrays especially since it also has access to more than 50 products from other software vendors that are already optimized for EMC infrastructure. Remember also that EMC decided to take all their lumps in a truncated 3Q01. They are now in the process of cutting their best-in-class final testing and assembly process in half, from approximately 30 days to 15 days and that will show up in lower fixed costs within the next 2-3 quarters. The European part of their 2nd RIF (Reduction in Force) -- approximately 1/3 of the RIF -- will also be complete by 2Q02. Based on their first RIF (May 2001) of about 1,100 workers, each 1,000 RIF results in approximately $22M-24M in charges in one quarter and $50-55M in SGA reductions in subsequent quarters when all the associated savings per employee are chalked up. EMC increased its headcount around 6x in 5 years, from less than 4,000 employees at the end of 1995 to less than 24,000 employees at the end of 2000. That kind of growth usually results in the build-up of organizational fat so I don't think they cut into any muscle with their last two RIFs and may even have kept a modest RIF in reserve for any contingency. So the question is why would EMC sell? Really?