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EMC chief looks to fend off rivals

Michael Ruettgers, chief executive of the maker of high-end storage systems, refuses to sit still.

Michael Ruettgers, chief executive of EMC, a maker of high-end storage systems, refuses to sit still.

The initials EMC stand for "Everything Moves Constantly," he says, and Ruettgers wants to make sure that the company he took from $400 million in 1992 to $4 billion in 1998 is not caught flat-footed.

EMC is the dominant storage system provider. But Hewlett-Packard, Sun Microsystems, and other hardware makers are taking a renewed interest in the storage market, and could present the first serious challenge to EMC in some time.

Reuttgers was recently in New York City to speak at a conference, and afterward took time from his schedule to chat with CNET News.com. Standing on a Manhattan sidewalk, a backdrop of snarled traffic behind him perhaps emblematic of the problems faced by Internet companies when systems come to a crashing halt due to user overload, Ruettgers spoke about the Internet's potential, EMC's competition, and the outlook for the company's continued growth.

Q: Where does EMC fit in the Internet economy?
A: We see the advantage of the Internet for us of course. The Internet is just a way to access information, and the information is not useful to you unless it is always available. And we have seen so many Internet startups that have stumbled, whether it's E*Trade or the rest of these guys, who get going but then they have an outage. They can't trade for two hours. As soon as that occurs they lose half the market share. So people who go into this business need to have this robust, what we call info-structure so that information is always available.

These systems need to be available all the time since competition is just a click away. If you aren't available, I'll just go somewhere else.

Q: What measures are you taking to make your products more competitive in light of the invigorated challenges from Hewlett-Packard and Hitachi Data Systems?
A: Couple of things, first we will spend roughly $400 million on R&D this year. We are probably spending as much as those companies are combined. We will continue to invest in software. If you look at us vs. Hitachi, we have at least a two-year lead.

A Hewlett-Packard executive said last week that that its going to be three years before [HP] gets all the products they have announced. Well, we have all those products today. So now maybe they are three years behind us rather than just two years behind us.

We will continue to focus on software. When software companies get going, it's very difficult to catch up. They are going to have to work very hard to close the gap. Last year for the first time, we didn't see any competitor closing the gap, we actually saw some lengthening in the gap.

Q: How do you address HP's criticism that EMC's architecture is aging and isn't good enough to fit into HP's goal of 99.999 percent uptime?
A: I find that humorous on two points. One is that they are replacing ours with a competitor who they acknowledge is probably three years behind us. So they said our architecture is 10-year old architecture, does that mean that Hitachi's is 7 years old or 13 years old?

But clearly they are replacing it with architecture that is behind us in terms of years. In fact, we have been the only people who have completely enhanced our storage systems in the last year and we did it again recently. So that doesn't fly.

Most of the places that customers lose availability is in server delays not in storage systems. Beginning in the 90s, yeah, it was the storage system. Today it's the server.

Their servers actually fail more than our storage systems. Part of the working relationship with them was to get their own products to work better. We don't have an availability problem with our storage systems.

Q: Are you changing your revenue or earnings guidance to financial analysts for the next quarter?
A: No, we have told them consistently this year that we expect top and bottom line to grow at least 30 percent. We also told them that last year we did $4 billion, and we expect to do $10 billion in revenue in 2001. We are still on that path.

Q: How is EMC going to be impacted with the Asian economy showing signs of life?
A: Asia shrunk from about ten percent of our business to about seven percent of our business over the last year. So it is a small piece of our business. The biggest country there that has to come alive, in the expenditure sense, has to be Japan. It has a huge GDP. We see minor movements around that, but they still have severe structural problems.

I think it's going to be slow. We have seen South Korea come back; we have seen Australia come back; we have seen some of the others smaller ones but what is really important is Japan turnaround.

Q: What is your favorite story about the Internet as it relates to its business potential?
A: The Internet is pervasive and impacting every business. If somebody doesn't believe it is going to impact them, they are going to get killed. My favorite story about the Internet is from earlier this year. Did you watch the Super Bowl? Did you see the Victoria's Secret ads during the game? Well before the end of the game, a million people had logged on and what I found interesting is that Victoria's Secret wound up selling products in 27 countries. Physically, they only do business in two.

So competitors in 27 countries were standing there and after the Super Bowl, six months of their demand got wiped out because these shipments that came in by [overnight mail]. That shows the power of the Internet.