Does EMC meet the criteria as a Buffett stock? A 10 year plus record, dominant in its industry, a simple product (refrigerator sized data storage containers run by EmC software)a growing need for the product in e commerce, health care,and the military and a PE less than that Of MSFT or DELL in the 60s last i looked? "the (data storage) market is EMC's to lose," several analysts say. Plus the CEO is very smart.
Best 10-Year Runner-Up
EMC Corp.
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By Jon G. Auerbach
Staff Reporter of The Wall Street Journal
In the field of computer storage, salting away a cache of EMC Corp. stock has proved far more (they didn't complete sentence!!)
The Hopkinton, Mass., company has served up some of the best returns of the bull market, logging an average compound annual total return of 69% during the past 10 years, second-best among the 1,000 companies on the Shareholder Scoreboard, behind only Dell Computer Corp.
An investor who put $1,000 into EMC at the end of 1988 would have been sitting on $189,775 at the end of last year. EMC, with 1998 revenue just shy of $4 billion, commanded a year-end market valuation approaching $43 billion.
The company has created these riches by driving innovation in the once-dull area of storing digital data.
A decade ago, EMC was a pioneer in making a new type of storage device by strapping together dozens of small, off-the-shelf disk drives into closet-sized boxes that served as data vaults for big computers. At the time, most storage devices employed large, specially developed hard disks. EMC's method was cheaper and faster, because the
many disk drives could work together to store and retrieve information.
Then, beginning in early 1995, EMC again redefined the business. Up to that time, mainframe computers used one kind of storage, computer networks another. EMC changed that by introducing so-called "open systems" storage, boxes that could be connected to both mainframes and computers based on newer operating systems, such as Unix and Microsoft Corp.'s Windows NT. This allowed customers to centralize their
data in one big machine -- an EMC machine.
The company compares its storage to a parking garage that can fit vehicles of all makes and sizes rather than a lot that holds only, say, compact cars.
The concept has resonated with customers. Nine months ago, Internet-access provider PSINet Inc. replaced its Sun Microsystems Inc. storage with new EMC equipment.
PSINet, Herndon, Va., says one of the main reasons for the switch was that the EMC gear could be connected to computers running three different operating systems.
PSINet has been impressed with the reliability and support it gets from EMC. "I have to be able to guarantee my customers a high level of service, and EMC allows me to do that," says John Watson, who heads the company's Internet-services group.
Contract wins like this have helped EMC leapfrog International Business Machines Corp. to become the leading vendor in the estimated $10.1 billion market for stand-alone storage that uses disk drives -- a discrete sector that Dataquest Inc. predicts will double to $21 billion in 2003.
Last year, EMC had 32% of the market, up from 27% in 1997. No. 2 IBM dropped to 20% from 24%, according to Dataquest research.
EMC "has taught the whole industry how important storage is," says Laura Conigliaro of Goldman Sachs in New York. Adds Gary Helmig of SoundView Technology Group,
"They just keep executing."
EMC was founded in 1979 by Richard Egan, the firm's 63-year-old chairman, and Roger
Marino, who left EMC in 1990 and is now the owner of the Pittsburgh Penguins. The first
letters of the two founders' last names formed the EM of EMC. A third businessman,
whose last name began with C, dropped out.
At first, EMC made memory boards. It got into stand-alone storage in 1989. Its move into
open systems four years ago coincided with a shift in the market away from mainframes
and toward networks of smaller computers hooked into larger machines, called servers.
EMC storage let these companies shift to computer networks but still get at the
information that had been stored by their mainframes.
The new storage also benefited from an explosion in data fueled by the Internet, industry
consolidation and the year 2000 computer problem -- that older computers programmed
for dates with just two digits representing the year could malfunction or shut down when
the calendar rolls over to 2000.
The advent of the World Wide Web meant people around the world could have instant
access to reams of electronic information, but it also meant that Internet providers,
banks, universities and companies needed someplace to store all that data.
While early EMC boxes held about 24 gigabytes, only a few times the capacity of some
PCs today, EMC's largest box these days costs $3 million and holds six terabytes of
data. That's equal to the information stored on 102,000 CD-ROM disks or 120,000
four-drawer file cabinets.
EMC expects revenue and earnings to grow at about 35% a year through 2001. Chief
Executive Michael C. Ruettgers, 57, predicts the company will reach $10 billion in
revenue in 2001, about double what analysts expect this year.
EMC has been getting extra fuel from add-on software that helps enhance its storage.
One software package lets users back up all their data regularly to a remote location,
something attractive to banks and other financial institutions that can't afford to lose
"mission critical" information.
Last year, sales of software more than doubled to $445 million. EMC predicts software
will grow another 50% this year. "They have gone from nothing to the dominant share,
and they're going to keep on growing," says Mr. Helmig. EMC, he adds, "is owning more
and more of the market, and we aren't seeing competition exactly coming on."
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