EMC is known for its close attention to what its customers need, and its new product gives NetApp's market for network-attached storage the stamp of approval.
As expected, storage colossus EMC on Tuesday arrived squarely in NetApp's market for storage devices that connect to ordinary computer networks. But NetApp's stock was a standout in Tuesday's fizzy market, jumping by $16.88, or 29 percent, to $74.75 in midday trading.
The likely reason: EMC is known for its close attention to what its customers need, and its new product gives NetApp's market for network-attached storage (NAS) the stamp of approval.
"This further legitimizes the NAS space, which introduces more competition but also helps NetApp, in our view," Merrill Lynch analyst Tom Kraemer said in a research note Tuesday. He believes NetApp will be able to continue its trend of roughly doubling its revenue each year for the next several years and estimated the NAS market will be worth $7 billion in 2003.
NetApp and EMC are two giants of the storage industry that until recently operated largely in different spheres. Unlike competitors such as Hewlett-Packard, Dell Computer or IBM, NetApp and EMC specialize almost exclusively in storage hardware and software. With Tuesday's move, though, NetApp and EMC are in the same market.
EMC strikes in storage war
John Webster, analyst, Illuminata
On the other side of the field, NetApp last week moved loudly into EMC's turf, announcing support for IBM mainframes and IBM database software--the core market that allowed EMC to get its start in the storage market years ago.
Illuminata analyst John Webster predicted EMC will face more profit-margin pressure with the new IP4700 NAS device, a less expensive product than EMC's core high-end Symmetrix systems.
"We expect to maintain the margins we have had," he said. In the longer term, EMC hopes to push prices down, gaining more in sales volume than it loses in profit margin, he added.
The IP4700 has a starting price of $82,000, with typical configurations costing about $120,000, Rothnie said.
EMC's model comes with redundant CPUs, paths to disk drives, memory, communications ports and other components, Rothnie said. With NetApp, comparable redundancy costs twice as much as with EMC because two units must be clustered together, Rothnie argued.
EMC's redundant components mean EMC won't have much appeal in lower-end markets, Rothnie said, but the company isn't interested in that product category. "NetApp has done fine" selling lower-end products, he acknowledged, "but markets do change. One thing that changes markets is the availability of alternatives."
EMC's IP4700 comes from Data General, a company that began work on Chameleon about a year before EMC acquired the company in August 1999. It uses Seagate hard drives, though other manufacturers' models will work, and Intel CPUs, Rothnie said.
Also today, EMC announced "HighRoad," software developed in conjunction with America Online that boosts Celerra. HighRoad lets Celerra handle information requests over ordinary computer networks but then lets a Symmetrix storage system fulfill the request over a special-purpose storage area network (SAN), EMC said.
However, Merrill Lynch's Kraemer said HighGround won't have any effect on EMC's business in the near future.
In the future, EMC is expected to bolster its SAN and NAS products through technology it obtained when it acquired CrosStor in November.
Big Blue's efforts
Meanwhile, IBM has beefed up its attempt to steal market share from EMC's high-end product line. Big Blue announced software called "Storage Tank," an effort to separate computing hardware such as storage systems and servers from the communications methods they use.
In other words, it's a way to undermine the lock EMC has on the high-end market by making it irrelevant to the server what type of storage device it's talking to. Linda Sanford, senior vice president of IBM's storage systems group, described the Storage Tank effort in a November interview in which she derided EMC's "proprietary" approach.
Proprietary or not, customers seem to like EMC. IBM, along with HP, Hitachi Data Systems and Sun Microsystems, still hasn't been able to crack much of EMC's market, analysts say.
It took three years to develop Storage Tank, IBM said. The company plans to release the software for its own products eventually, and it will release an open-source version of the software for Linux systems.