isham research
This is just a little update note to crow a bit about the original June 2001 prediction - a combination of a newly aggressive Hitachi Data System, solid IBM sales and EMC's superannuated architecture has produced the predicted results. EMC's stock price has now fallen well over 80% in a year and little action to correct the problems has been taken or seems to be planned - some players are proving that it's not an industry-wide problem. Recent comments suggest the Mosaic architacture - now over a decade old - will have to suffice for over a year. Cost cutting is supposedly rife, though not yet anything like enough. As if that were not enough, Fujitsu has decided to re-enter the DASD subsystem market. Companies that start from nowhere are often the most aggressive - as EMC was when it originally entered the market itself, and as Hitachi has been this year. EMC has diverted its investments largely into software - a hotly contested sector with low cost of entry.
There is a revenue breakdown hidden away at the bottom of EMC's Consolidated Statements of Operations ? The relationship between "Information Storage Systems" and "Information Storage Software" across recent quarters - most especially 3Q01 - is very interesting. Hardware revenues are down 45% - but software is down 52%. Services shows only 2% growth.
One interpretation is that EMC recognises a very large proportion of each software contract as immediate revenue with a comparatively small proportion being accrued to be recognised as 'maintenance' under "Information Storage Services". The usual reason for a hardware vendor to get into the software business is to provide a revenue stream that bridges hardware cycles - not here, it seems.
The hardware revenue trend is not a pretty graph. If it continues (and Fujitsu's move makes this more likely than ever) and the software revenue continues to track it, EMC is truly in trouble. Having already spun off McData, it has now effectively dumped the Clariion product line (marketing, sales and also production) onto Dell.
Dell and EMC will jointly sell EMC's CLARiiON line of enterprise storage systems, filling a gap in Dell's product line. In addition, Dell and EMC will look for opportunities to use Dell's procurement and manufacturing capabilities in the production of EMC CLARiiON products, they said.
There are lots of interesting stories about, including a somewhat bizarre suggestion that IBM should merge with EMC. Were they watching the Sequent merger?
Come back JTB, all is forgiven.