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Why did EMC's revenue implode?

by by Zsolt Kerekes, editor - October 18 - 2001
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news:- October 17, 2001 - EMC reports that Q3 revenue
is 47% lower than the same quarter last year.
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.....
.
Kaboom! EMC implodes. Is this the end of storage as we know it?

Will the rest of the storage market now disappear into a black hole? ...thus defying all predictions made by analysts,including yours truly, saying that the storage sector would not only escape the worst ravages of the IT recession but might actually grow regardless Well you can't always believe analysts, but they aren't always wrong either. So here's my explanation how both the predictions of an expanding storage market, and the fact of an imploding EMC can both be true at the same time.

Well, here goes...

in my view, if you look at what's happening to other companies in this industry, and I don't just mean 2 or 3 companies, I mean if you look at's what happening in a LOT of storage companies, then I would agree with EMC that the IT recession hasn't helped any, and that September 11th impacted everything, not just storage... but you know, I really think that this is an EMC problem, and not a symptom of what's happening in the rest of the storage industry. In the same quarter VERITAS Software, another bell wether of the wider storage market reported a 7% year on year revenue growth, and many other storage software companies, and tape library makers have reported double digit and sometimes triple digit revenue growth.
news image - Gartner report on EMC market share news image - EMC market share
market share charts from featured EMC press releases

There are 2 reasons why EMC has been impacted with unique severity, and these factors have not affected other storage companies to the same degree.

  • the Sun market. Possibly as much as half EMC's business has historically come from users of servers from Sun Microsystems. And, earlier this month, Sun reported a very bad quarter indeed, with revenue 43% down from the previous year. That's a much bigger adverse change than companies which make Intel Pentium based servers, and the root causes have been around a while. That closely coupled link worked well when Sun was growing, but it also works equally fast in the negative direction.
  • the problems of being a successful incumbant. EMC's success in recent years did not go unnoticed, and more than 200 RAID systems companies and about 50 venture capital backed startups have been planning to grab a slice of that tasty looking market for the last year or so. I think that $600 million or more, of EMC's shortfall, has actually been carved up into several hundred small chunks that have been swallowed up by companies which have been working very hard to nibble away at EMC's market.

    EMC probably doesn't even list those companies as competitors, because individually they aren't big enough. But it's like the PC business in the early 1980's. IBM's major market share got whittled down into a lot of smaller chunks as soon as someone identified the PC market in their business plan. That was before they had Powerpoint of course. Today, there are hundreds of Powerpoint presentations out there which all have a pie chart saying "we're going to take 2% of EMC's business". When you add up all those 2 per cents, then, as in all such plans, they add up to more than the whole market. But they also have an impact on the company being targeted.

My view, for what it's worth, is that when all the data comes in for this quarter, it's likely that the storage segment grew a little bit. EMC has to learn to live in a more competitive market, and that's going to be tough. But it will still survive and thrive when the economy picks up again and it can go back to cherry picking customers.

...EMC profile


...Later:

October 22, 2001 - Dell and EMC announced a five-year, multi-billion dollar strategic alliance agreement to accelerate the growth of both companies' storage systems businesses in a market expected to reach $100 billion by 2005. The agreement pairs the industry's leading computer systems company with the leader in networked information storage systems to serve customers worldwide. Under the agreement, Dell and EMC will co-brand EMC's CLARiiON line of enterprise storage systems. The alliance will make Dell the leading reseller of the CLARiiON product line, which will become Dell's standard offering for SAN and high-end NAS installations. ...Dell Computer profile, ...EMC profile

Editor's comments:- this reseller agreement can be seen as both a strategic response to the HP/Compaq merger and as a short term fix to EMC's recently reported collapse in revenue. In my January 2001 article I predicted that Dell would be one of the top 10 storage companies in 2003, a target which it was on course to achieve from its own resources. This EMC deal, just makes Dell's mission easier. The long term risk for EMC is that end users will perceive their storage as being Dell rather than EMC branded, and Dell could substitute its own products in the future. But EMC does have to switch from a direct sales, to a channel based marketing model to survive in a market where Terabyte storage systems have become commodity products. This deal provides an excellent business building opportunity for both companies.

...and then:

Hopkinton, Mass.- November 29, 2001 - Joe Tucci, EMC President and CEO, today announced the creation of three operating units to strengthen the alignment of the company's operations with its business strategy.
  • Storage Platforms Operations
  • Open Software Operations
  • Customer Operations
Editor again... you've got to give EMC credit for taking fast action. But I don't think it will stop their slide in market share. Storage is going to be like the PC market after all.

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