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

To: John Carragher who wrote (14237)	5/10/2002 8:37:56 AM
From: JakeStraw	Read Replies (1) \| Respond to of 17183

EMC's Software Goals in Sight thestreet.com For years, EMC (EMC:NYSE) has been trying to get IT purchasers to think as highly of its software as they do of its storage hardware. One industry observer says it's starting to happen. According to Enterprise Storage Group's Steve Duplessie, EMC's sales mix seems to be improving. "While EMC's stated goal is to garner 30% of revenue from software and 50% from hardware, execs expect that the percentages could be reversed," Duplessie said in a conversation excerpted in a note from Merrill Lynch. Duplessie also said he was "quite bullish" on EMC's new Centera offering. Playing Catch-Up In late April, EMC launched Centera, a product that stores "fixed content," or data that isn't meant to be changed, such as e-mail documents, digital x-rays, and books, to boost its faltering sales growth. Over the past year, EMC has been hurt by dismal IT spending and price-competition from other players. And the company has been working to transition its business to software, as hardware sales have plunged. To be sure, EMC still has a way to go toward meeting even its initial goal of 30% in software sales. In its first quarter, the storage giant took in 57% of its revenue from hardware and only 22% of it from software. And this year, EMC expects that Centera will account for less than 10% of its sales. Another barrier for EMC is the fact that about 90% of its software sales are tied to hardware sales, meaning that users of IBM (IBM:NYSE) hardware aren't layering on EMC software. In the last six months, EMC has created middleware to interact between others' hardware and its own software. But that program depends on getting code from other companies. According to one analyst, the only vendor who has provided it is Compaq (CPQ:NYSE). Still, EMC is convinced that its two-week old Centera product -- the only one of its kind for fixed-content -- has big potential, estimating that the market will reach $3 billion in 2003 and $10 billion in 2005. And since software margins are very high, the end result would be good for EMC's bottom line. In the meantime, EMC has to figure out how to become a software firm, which is by no means easy. Lately, shares of EMC were off 5.2%, at $7.87, amid a broader selloff on the Nasdaq. Strong Opinions In a wide-ranging conversation about other storage names, Duplessie said that he expects Sun Microsystems (symbol:NYSE) be an original-equipment-manufacturer -- or reseller -- for a mid-range system, possibly from chipmaker LSI Logic (LSI:NYSE). He said Network Appliance (NTAP:Nasdaq) has a loyal customer base and does well selling add-on service. But he's concerned NetApp is a "one-trick pony," as it is trying to broaden its market reach using one technology. Duplessie said switchmaker Brocade's (BRCD:Nasdaq) new 12000 product is "gaining traction," and that IBM's (IBM:NYSE) claim that there were problems with it is wrong. Finally, he said that he doesn't think Cisco (CSCO:Nasdaq) 'speaks storage' yet, and that it will have limited success until it does."