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Data-Storage Giant EMC Posts Profits, Gains Market Share in 2003

Posted on: Tuesday, 18 May 2004, 06:00 CDT

May 18--The shareholders at EMC Corp.'s annual meeting this month were not altogether pleased with a recent slump in EMC's stock price. But nobody was calling for the scalp of CEO Joe Tucci or of anyone else on his leadership team.

Far from it.

The consensus in the room: People would be crazy to sell EMC stock these days.

EMC, the giant data storage company in Hopkinton, was bludgeoned by the 2001-2003 technology slump. Now the company is riding high again, posting solid profits, gaining market share, and delivering on its pledge to develop a storage software business to complement its high-powered disk drive arrays.

It's a remarkable turnaround. EMC did not make the overall Globe 100 this time around, because the list includes only those that were profitable two years in a row. But the company gets a consolation prize for staging the most impressive business comeback in Massachusetts over the past year.

How impressive? Remember, the company lost half a billion dollars in 2001, its first loss in over a decade. It repeated that unfortunate benchmark in 2002, posting a $118 million loss. Shares of EMC fell from more than $100 to less than $10. Investment bankers were whispering that the company was a prime target for acquisition -- a deal that would have cost Massachusetts its biggest home-grown technology company.

But by 2003, the EMC machine was beginning to hum again. In a year when the entire data storage market grew by 3 percent, EMC revenue grew 15 percent. And profit made a comeback, with the company earning just under half a billion dollars last year.

Obviously, EMC, like many other companies, benefited from the economic recovery. But Tucci said there was a lot more going on. "Despite bad times in 2001 and 2002, we continued to invest in new technology," he said.

The result was a series of product rollouts. EMC beefed up its bread-and-butter Symmetrix high-end storage systems, and added a sub-$10,000 storage device to its midrange Clariion line. In addition, the company introduced a new kind of storage device called Centera, designed for secure, tamper-proof storage of critical data such as medical records or e-mail messages.

"EMC, 24 months ago, recommitted themselves to technological excellence," said Tony Prigmore, senior analyst at Enterprise Storage Group, a data storage research firm in Milford, "and so the benefit of that is that they have refreshed not just the technology itself, but the perception that they are a leading provider of innovative solutions in the storage market."

Meanwhile, Tucci followed through on his plan to derive a larger share of revenue from data management software. That required EMC to make all its software compatible with storage hardware made by rival firms like IBM Corp. and Hitachi Data Systems. "Now our software didn't only manage EMC products," said Tucci. "They were truly open."

At the same time, EMC continued a campaign of acquisitions, buying up companies that could fill out gaps in its software offerings. The company spent $3 billion to acquire Legato, a data-backup software firm, and Documentum, an information management and indexing company.

In perhaps its most radical purchase, EMC paid $625 million to acquire VMware, a maker of software that allows server computers to run several different operating systems at once, and lets multiple computers act as if they were one large machine.

This "virtualization" technology seems to reach beyond the bounds of EMC's storage business, but EMC regards it as a vital tool for maximizing the efficient use of server and storage systems.

In the midst of all this, EMC was rethinking its way of selling.

"Historically, EMC had only brought products to market with a direct sales force," said Tucci. You couldn't buy EMC products through a third party, like a systems integrator. That froze the company out of too many smaller accounts. "We broadened our channels," he said, launching new distribution partnerships, while focusing its direct sales force on the company's 2,500 largest accounts.

Put it all together, and it spells comeback. And there's probably more to come. This month, EMC will announce another low-priced storage product, a sub-$5,000 device that's code-named Piranha and could open up the hitherto-untapped small business market. Tucci noted that the Legato, Documentum, and VMware acquisitions have not really begun to contribute to the bottom line.

And of course there's the ongoing economic recovery. EMC expects 5 or 6 percent growth in the storage business, but Tucci declared that EMC will grow its revenue by 25 percent, taking the additional business out of its rivals' hides. It's a bold prediction, but Tucci doesn't flinch. "We have met or beat expectations every quarter," he said.

Which explains his confidence, and EMC's comeback -- and why a dip in the stock price doesn't seem to bother his company's shareholders at all.

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(c) 2004, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.

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