In 1999, the provider of high-end storage products began touting how the rising business tide of the Internet was lifting its business. Even though skeptical investors are raining on the Internet parade now, EMC says it's weathering the storm.
In a recent interview with CNET News.com, chief executive Mike Ruettgers boasted of EMC's all-weather business model, saying the company saw no dampening of its business despite the dot-com downturn.
"We've seen an acceleration of growth all the way through this period, even with the softness of the dot-coms," Ruettgers said. "If you see our second-quarter results, we had the fastest growth rates in a quarter since mid-1995."
Analysts agree that the Internet isn't a liability in EMC's customer portfolio. "EMC's Internet business is expected to grow from over 12 percent of (the company's) storage revenue to close to 20 percent" by the end of this year, Goldman Sachs analyst Laura Conigliaro predicted in a research note Monday. "This suggests that Internet revenue may triple, from over $500 million in 1999 to close to $1.5 billion in 2000."
Ruettgers, who has led the Hopkinton, Mass., company for the last nine years, isn't afraid to boast about his role in helping EMC rise from an obscure seller of memory for a now-extinct breed of servers to the powerhouse of the increasingly important data storage market.
"We're able to read the markets, to call the markets. Every last major trend change in the last decade, we've called," he said, attributing this success to his own obsession with staying in close contact with customers. "When I first came to the company, I ran the customer service side of the company."
Indeed, Ruettgers has been a key force in laying the groundwork for EMC's current health. For example, he coaxed reluctant EMC personnel to expand storage products outside the traditional mainframe world into what has taken over as the most lucrative segment of the server market, Unix computers.
Ruettgers talked about the Internet, the increasing competition in the storage market, and other subjects in an interview with News.com's Stephen Shankland during a recent visit to San Francisco.
CNET News.com: There have been traditional companies, the General Motors of the world, that have bought your equipment. In the last year or two there have been a lot of Internet companies. What's the mix between those two types of customers?
Ruettgers: Pure Internet companies are still less than 10 percent of our business. But what we're seeing more and more (is that) the Global 2000 companies are just beginning to move to the Internet. Many of those companies were tied up with Year 2000 and other concerns through the end of last year. Now, with resources freeing up, they're able finally to start looking at the Internet, particularly looking at the Internet as a way to expand their businesses.
How do dot-coms differ from traditional customers?
Because the dot-coms are under so much pressure to move quickly and the systems have to be available all the time, typically they'll buy a full suite of products from us--all the software and all the hardware--and put it in as one lump so they don't have to spend time putting it together themselves.
The Global 2000 can't move as quickly, because they have all this existing infrastructure, so they have to take it piece by piece. The dot-coms move a lot faster, but they also have a more demanding environment. If they're not up for customers then you read about it in the papers the next day.
In most of the Global 2000, if they have an application that doesn't work, most of the time even the chief operating officer doesn't know about it. Whereas if a dot-com application doesn't work, everybody knows about it.
What has been your greatest failure?
I think the thing we struggle with the most is getting enough people and making them productive. (The problem isn't) hiring, because we have plenty of talent coming, it's how do you get them productive fast?
What are you doing about it?
A major beefing up of training, and a focus on improving productivity throughout the company.
What is the competitive landscape for your high-end Symmetrix product and your low-end Clariion line?
We continue to gain share in most of the markets that we participate in. If you look at the high end, there's almost been no change in that for us in the last year or so.
IBM has a product out that I would say had modest or lukewarm reception. Hitachi, in response to the new products we announced in April, announced a future product that looks very much like the products we've recently announced. When you look at the mid-range, people are announcing products, but I don't see them gaining share.
If you look at the most recent results, our storage revenues grew 43 percent in the second quarter. Almost nobody grew even half that.
Is the competition winning a larger fraction of the storage business?
The addressable market is expanding so rapidly that even people who are losing share may have reasonable businesses there. The addressable market for EMC this year is about $44 billion. We think the addressable market in 2005 exceeds $100 billion. There isn't any way we're going to have 100 percent of that.
Do you see the plump profit margins continuing? Some analysts have said they expect your section of the market to start getting more competitive, the way the server side has been getting.
If you look at the value customers get from us, much of the value is in the software and the services that we provide. I don't see any pressure there.
How often do you bid against Sun Microsystems for storage?
We see Sun most of the time, particularly in the dot-com area, because they're the server platform. (But in storage) we continue to gain share against them.
Storage area networks, the architecture you prefer with numerous servers connecting to a centrally managed island of storage systems, long has been based on Fibre Channel networking technology. Will that switch to Internet Protocol, and if so, when?
When the technology comes, we'll be ready to support it. It's starting now, but it's very early, and these interconnect technologies last a long time.
An increasingly popular alternative to attaching storage directly to servers and to using storage area networks (SANs) is a sort of middle ground called network-attached storage (NAS). Some people think storage area networks and network-attached storage are converging. What do you think?
The larger customers will use both. The larger customers are migrating from server-attached (storage) to storage area networks. And at the same time they may have within their organizations engineering departments that use network-attached storage.
I see lots of companies running their business entirely on direct-attached. I see some starting to run their business on storage area networks. I see none running their entire business on network-attached.
What is it like being based on the East Coast, away from Silicon Valley?
You get several things. One is affordable housing. You get low turnover rates. EMC's turnover rate is about 10 percent compared to the 20 percent typical turnover rate out here.
What's happening with the Aviion line of Intel servers EMC acquired from Data General? It seems like the line has almost disappeared.
We're using that technology to build some different products. You'll hear some of those announcements probably over the next year.
(Aviion) was a piece of the business that Data General was struggling with. When we acquired Data General, it was primarily for Clariion, the disk storage product, and that's where we're putting most of our energy.
Are those servers products?
It's a combination of technology products that we think will be excellent fits for what we see customer trying to do. Unlike other companies, we don't have to preannounce products that don't exist.
What are the fingerprints you feel like you've left on the company?
Clearly the customer focus (which led to) the fact that we're able to read the markets, to call the markets. Every last major trend change in the last decade, we've called.
If you look at where we are relative to customer satisfaction, we are No. 1 in the industry. Our customer retention rate is 99 percent. When I first came to the company, that's the part of the business I ran, the customer service side.