EMC edges past estimates in booming storage market

The seller of high-end storage hardware, software and services reported net income of $458 million, or 20 cents per diluted share, on revenue of $2.28 billion for the third quarter ended Sept. 30. In the same quarter a year ago, the company had net income of $296 million, or 13 cents per share, on revenue of $1.7 billion. Revenue grew 34 percent.

EMC Stock price from October 1999 to present.

Source: Prophet Finance

But EMC's stock wasn't immune to a general market downturn this morning triggered in part by anemic revenue growth reported by IBM on Tuesday. EMC stock dropped $5.13, or 5.6 percent, to close at $89.63.

EMC didn't quite attain the high expectations of analysts such as Merrill Lynch's Thomas Kraemer. "EMC should be able to handily beat our revenue and earnings per share estimates," Kraemer said in a research note Tuesday. Though his official estimate was 19 cents per share, he said 22 cents was "in the cards."

EMC has been fending off rivals IBM, Sun Microsystems and a partnership of Hitachi Data Systems and Hewlett-Packard to keep its top spot in sales of high-end storage devices, often costing $1 million or more and used to house the core data for large companies.

EMC chief executive Mike Ruettgers, fiercely competitive and supremely confident, boasted in a recent interview that the company's tight relationships with customers have enabled it to predict exactly where the storage market is moving.

U.S. Bancorp Piper Jaffray analyst Ashok Kumar concurred. "EMC has very tight relationships with its customers, and they know exactly what's going on," he said Tuesday.

That tight relationship, though, may be tighter than some customers prefer, Kraemer said. "It seems that customers must sign nondisclosure (agreements) when they buy EMC products. This apparently reduces tattling on pricing and helps keep (EMC's) sales force fat with commissions," he wrote.

But in the end, EMC still wins. "Customers protest the pricing and then just buy more," he said.

Ruettgers said in a statement that his company gained market share in storage overall and in different product segments. In addition, the company saw "excellent growth" of storage revenue in all major areas of the world, including 42 percent in North America, 39 percent in Europe and the Middle East, 130 percent in the Asia-Pacific region, and 62 percent in Latin America.

Its network-attached storage effort, which competes with Network Appliance, generated revenue of $133 million, nearly three times the previous years' sales. Its midrange Clariion product sales grew 40 percent to $165 million.

The company's bread and butter continues to be its high-end Symmetrix storage line, however. Though the company didn't report specific sales of the product, revenue increased 43 percent over the year before.

Part of EMC's success, however, is the result of competitors' missteps, Kraemer said.

IBM's "Shark" storage product is afflicted by delays of high-end features such as full Fibre Channel support and remote copy and peer-to-peer copy abilities. These and other problems have "hurt Shark and IBM's credibility," Kraemer said, and IBM has correspondingly cut prices, often to half of list price.

HP and Hitachi, meanwhile, have just begun selling in volume their new high-end "Lightning" storage product, which had been announced in June. Customers are concerned with Hitachi's ability to produce and sell the product, while HP is suffering from problems with its sales channel, Kraemer said.