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

To: TraderEd who wrote (14063)	4/16/2002 2:13:53 PM
From: Gus	Respond to of 17183

That's true. Many people don't understand that a company can diminish or actually lose its right to exclude others from using its inventions if its opponents can show that the inventor did not protect its inventions vigorously. Furthermore, EMC already controls 55% of the $1.1B Replication market and and slightly more than 30% of the $5B Storage Software market while Hitachi/HDS barely registers a blip at less than 2% so EMC is clearly outselling Hitachi/HDS in the marketplace and forcing it to heavily discount its hardware to increase the footprint of its software. Many people know about the 1999 cross-licensing deal between IBM and EMC prompted by some influential customers who wanted to see IBM servers and software work better with EMC storage systems and software particularly SRDF and TimeFinder. What many people may not know is that EMC and StorageTek fought over their patents vigorously during the 90s, most recently over Virtual Tape technology. During this time also, IBM was finally freed from its decades-long anti-trust shackles and was in the process of driving Fujitsu and Hitachi out of the mainframe market using a hard-nosed combination of tactics including stiff patent enforcement. I think those bitter patent battles with StorageTek and IBM's patent strategy most definitely informed EMC's patent strategy. I also think that the patent action against StorageApps (now HWP) and Hitachi/HDS represent the next phase of EMC's patent strategy calculated for blocking purposes more than royalty collection as networked storage continues to accelerate the commoditization of the servers. EMC increased its patent portfolio from more than 50 patents in 1995 to more than 500 in 2000 mostly through internally developed patents but also through acquisitions. One acquisition, in particular, stands out. In 1996 EMC acquired the 30+ patent portfolio of MTIC for $30M which was later increased to $40M in 1999 when EMC and IBM cross-licensed their patent portfolios and triggered a conditional third party clause. MTIC is the network storage company founded by Ray Noorda of Novell fame which did some some of the most original work on network storage in the late 80s and early 90s. That's not surprising since Novell was THE networking powerhouse during that time period. I think the importance of those basic patents -- particularly as a foundation for new patents -- will become more visible as EMC continues to increase its 39% share of the networked storage market and its 30% share of storage software market. For example, EMC is a co-chair of the iSCSI working committee formulating the iSCSI standard. Under the rules of the iSCSI Working Committeee, all members have to disclose their applicable patents during the course of the standard formulation and make those patents uniformly available to all comers under reasonable terms. As it turned out during the course of the committee's work, EMC has a basic patent issued in 1997 covering the use of SCSI over a network. That patent was internally developed at EMC by one of EMC's most prolific inventors and it contained 11 prior art references including a reference to a 1991 patent issued to MTIC whose patent portoflio, as earlier mentioned, was acquired by EMC in 1996. Another group of patents to look at is EMC's HighRoad Multiplex File System especially as it relates to the next-generation *unified* file system plans of IBM, Sun and Microsoft. Owning those types of basic patents in next-gen technology like iSCSI and *unifying* file systems can only strengthen EMC's hand. Consider that iSCSI accounts for less than 1% of the SAN interconnect market and IDC expects that it will only get 17% of the market in 2005 and you will understand how ahead the curve EMC is in terms of basic patents and working technology. My guess is that rather than aim to collect royalties, EMC will use its patents to further their AutoIS/WideSky agenda, which continues to gain momentum. It may even moderate the suicidal price actions of some of its competitors. For example, if EMC succeeds in this patent action against HDS/Hitachi and forces it to gut the offending replication technology from its systems, it not only seriously disrupts Hitachi/HDS, but it also seriously disrupts HWP and Sun which are both reselling the Hitachi/HDS box. Sun lost major market share last year and it appears that the Hitachi/HDS box is not going to stop the bleeding. This probably means that Sun will soon be forced to change plans again for probably the 6th time in the last 5 years. Such is life for those who continue to operate as if 400+ million Wintel computers simply do not exist on this planet. Assuming the HWP and Compaq merger goes through, the merged company has major integration issues to resolve during the next 18 months. If EMC's patent actions in replication against HWP/StorageApps and Hitachi/HDS prosper, it can only add to the market confusion particularly since Compaq has also demonstrated some resistance to reselling other people's technology as demonstrated by its inability to sell a single rebadged Shark during its 15-month alliance with IBM. Odds are that HWP's rebadged Ligthning will encounter the same resistance. See how this patent thicket is nothing but good for EMC?<g>