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

To: Thomas M. who wrote (14826)	1/10/2003 3:17:32 PM
From: Elmer Flugum	Respond to of 17183

Storage Industry Faces Further Sales Decline Friday, January 10, 2003 BY BRIAN DEAGON INVESTOR'S BUSINESS DAILY Unless there is a notable pickup in business spending in 2003, the data storage industry is likely to see its third straight year of declining revenue. Sales of data storage gear from suppliers such as EMC Corp. (EMC), IBM Corp. (IBM) and Hewlett-Packard Corp. (HPQ) will be down 3.7% this year vs. last, according to International Data Corp. As bad as that sounds, the decline doesn't look all that bad compared with 2002, when sales of external storage systems fell a whopping 24% to $13 billion from a year ago. Sales were down 21% in 2001. If there's a silver lining to a dismal 2002, it's that industry players had ample time to plan new products. If any one of several companies has a new piece of gear take off, it could see itself in a leadership role by the end of 2003. Data storage sales fell hard in the past two years because businesses focused on wrenching more from what they already had. Businesses went from buying large storage systems to support massive technology projects to buying small to midrange systems on an as-needed basis. "Customers were buying what they needed only when they needed it," said Charlotte Rancourt, storage analyst at IDC. Instead of buying systems that cost upward of $300,000, they bought those that cost $150,000 or less. But while demand for storage hardware slowed, the need for software and network-switching gear rose. It is for this reason that new industry leadership could emerge in 2003. ------------------------------------------------------------------------ ------------------------------------------------------------------------ In the late '90s and into 2000, the focus was on speed and capacity. That trend fueled EMC's rise to the No. 1 industry position. While EMC is still No. 1 in sales of networked storage systems, its lead has been slipping. In the third quarter of 2002, for instance, Network Appliance Corp. (NTAP) overtook EMC as the No. 1 supplier of low-end networked storage systems. At the high end, Hewlett-Packard overtook EMC, partly due to HP's acquisition of Compaq Computer, a large storage player. When sectors are combined, though, EMC held onto its No. 1 position. However, when sales of all external disk storage systems are added in - networked storage as well as low-end disk systems that are not networked - Hewlett-Packard took the No. 1 spot from EMC in 2002. Overall, in terms of products and performance, no one storage company appears to have a dominant edge over another. "What is changing is the way money will be spent," said Steve Duplessie, an analyst with Enterprise Storage Group. "It used to be all about the hardware, a war that favored EMC. Now it's more a question of, 'Who will you buy your software from?' " Industry watchers say there is no clear leader in the storage software field, an area in which storage companies have been investing heavily. Pure-play storage software companies like Veritas Software Corp. (VRTS) are well positioned. Nonetheless, for the last few years, EMC has been spending the bulk of its R&D budget on software. IBM has also invested heavily in this area. "On the software side, IBM has the upper hand," said Jonathan Eunice, analyst at research firm Illuminata Inc. "EMC has made big strides, but they are still focused on their (high-end) Symmetrix hardware. Making EMC into a software organization is a long and hard road." That's not to say hardware is no longer important. Industry analysts expect EMC will announce a new version of Symmetrix early this year. The industry buzz is that the new product will clearly put EMC in the lead position in terms of hardware performance. EMC's competitors have claimed it lost that edge. "EMC's competitors will no longer been able to bash them on system performance," said Duplessie. On the software side of EMC's business, IDC's Rancourt says EMC "is a strong player." Industry watchers agree that price wars that ravaged the storage industry in 2002 have abated. If that trend holds, says Duplessie, it's possible that industry sales in 2003 will be above 2002. He notes, for instance, that although sales have fallen the past two years, the need for storage has not. On average, businesses boost their storage capacity 50% to 100% each year. Price wars have helped keep a lid on industry revenue growth. investors.com