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

To: Nathan L. who wrote (6321)	5/7/1999 3:22:00 PM
From: JDN	Respond to of 17183

Dear Nathan: Sounds good to me. JDN

To: Nathan L. who wrote (6321)	5/7/1999 4:43:00 PM
From: jhg_in_kc	Read Replies (1) \| Respond to of 17183

How EMC Will Grow 30% After Losing 20% of Revenues May 7, 1999 by Brion Clayton Editor of the Tech 100 Daily Report Hewlett-Packard's plans to use storage equipment from Hitachi Data Systems is anticipated to impact HP's partnership with EMC. Hewlett Packard has desired to switch its reseller relationship with EMC to an original equipment manufacturer agreement. EMC has rejected making storage devices that would be Hewlett Packard branded. In January, the current reseller partnership was extended until December, 2001. In 1998 HP sold $700 million of EMC storage equipment, 20 percent of EMC's overall revenue. It is estimated that the partnership will result in $1 billion of EMC's estimated 1999 revenue of $5.1 billion. This news has helped draw EMC further down from its high of 134 15/16. Loss of revenue because of the HP/Hitachi deal will not be immediate and complete. HP will presumably sell both Hitachi and EMC systems. HP currently uses Data General's Clariion and its own AutoRAID systems. Many of the systems obtained from Hitachi will replace those systems, and not EMC product. EMC's head of sales and marketing Robert Dutkowsky says that he does not see HP's move impacting 1999 net income or revenues. Dutkowsky says EMC has been preparing for this possibility by doubling its sales and service force over the last 18 months. EMC is sticking with its forecast for revenue growth of over 30 percent in 2000. The HP/EMC partnership gives HP a percentage of sales of EMC storage equipment sold to HP custumers. EMC entered into the reseller agreement in 1995, when the company was having trouble getting business from larger enterprises. The partnership agreement does not allow EMC to sell directly to HP customers. In the years since, EMC has gained brand recognition and respect. This benefit from the HP agreement will continue as customer inertia leads to the buying of the same hardware and software. Some EMC sales staff do not like the agreement with HP, because they feel they could better sell EMC devices to HP customers without HP. At times EMC has has wanted to move product to HP clients faster than HP wanted to resell. EMC would be able to sell to HP customers at a lower price, if it did not have to share its profit on those sales with HP. The restrictions placed on EMC may be loosened by HP's deal with Hitachi. The HP/EMC agreement will allow EMC to compete directly for HP customers, if HP offers competing storage equipment with capacity greater than 100GB. Many analysts believe the move by HP will be neutral to EMC's results. The concerns about the company they stress are valuation, possible slow-down of Internet related equipment sales growth, and the reallocating of equipment caused by the termination of Y2K preparation projects. EMC has contended that its survey of over 1,000 customers indicate that there will not be loss in demand for its products due to Y2K. Research published by International Data Corporation (IDC), Gartner Group, and Meta Group forecast no negative Y2K impact on EMC. A recent independent survey of 50 CIO's found that only 16% believe they will slow enterprise spending in the fourth quarter. EMC will see new revenue from ramping up its storage software applications. EMC is one of the world's fastest growing software providers. First quarter 1999 software revenue grew 135% to $155 million. EMC estimates that less than 40% of its installed Symmetrix systems use EMC software. EMC hopes to reached $1 billion in annual software sales in 2001. Growth in its software segment will improve overall profit margins. Generally, software profit margins are higher than hardware margins. In short regardless of the HP/Hitachi deal, none of the previous circumstances that gave many a positive outlook for EMC have been negated. Goto the main page for more insightful content... Copyright 1999, StreetAdvisor.com, all rights reserved. Do not duplicate of redistribute content in any form without the permission of StreetAdvisor.com. Linking to articles is permitted. This article is provided by a user of StreetAdvisor.com. StreetAdvisor.com, Kevin Prigel, and Kadep Technologies disclaim all liability for information contained or implied in this article. The companies, ideas, and investments discussed in this report may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources, or consult a qualified professional. Investors should be aware that the price of the securities discussed in this report may be subject to price swings that could lead to a significant loss of capital. StreetAdvisor.com's employees or article submittors may have a long or short position or hold options on securities or other related investments of the company discussed in this report. 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