Just a few years ago, any suggestion that storage company EMC could put itself on a par with Intel, Microsoft or Cisco, would be greeted with derision.
But Michael Ruettgers, chief executive and president of the Massachussets-based firm, now finds himself being taken very seriously by Wall Street.
Last week, Ruettgers? company posted net profits of $189 million on turnover of $952 million - the fifth consecutive quarter showing growth of more than 30 per cent . IBM, the one time market leader is now relegated to a poor second.
Ruettgers does not believe Big Blue will ever make it back to pole position. He says: "I don?t see the willingness on behalf of IBM to come back into the market. By the end of the year, customers will buy more storage than processors. Companies like Compaq and IBM have to stop the erosion of their own markets."
According to Ruettgers, EMC has a big lead on its competition, with companies including Sun and IBM struggling to produce a unified solution for the corporate marketplace.
"In two to three years? time, the marketplace will be a completely different game," he says. "The way we?re going, the only people who will be making hardware for processors is Intel, everyone else will be repackaging products."
Ruettgers believes there are several trends driving the acceptance of EMC?s storage technology. Every market research study shows that the market for storage is booming and, he says, companies like Broadcast.Com, which will deliver wide bandwidth heavy products incorporating video, will need the type of solutions EMC offers.
Nor does he think EMC will be challenged by newcomers. "I think if someone comes into the market, it will be at the low end. We?ve made a huge investment in software and it?s very difficult for newcomers to enter that market," he says. "If you look at complex environments, it?s a huge investment."
He says EMC invests around eight per cent of its total revenues in R&D and that kind of money is not easy to find. And Ruettgers does not think that hard drives will be supplanted by other technologies. "Hard drives have improved so much that we?ve eliminated optical solutions and we?re displacing tape," he claims.
EMC is currently sitting on a $1 billion crock of cash and there is no doubt the company will make acquisitions. But Ruettgers is cautious about where it will strike. Rumours and speculation at its Hopkinton plant centred around it taking over Data General?s (DG) Clarion solution, would fill a hole in EMC?s portfolio at the low end. DG is currently in the process of spinning off Clarion as a separate division, with its own sales and marketing.
Ruettgers says: "There are three legs you have to put on a stool for it to stand." Those, he says, are product, distribution and support. "There are products around and there are some interesting products around."
He quotes an American bank robber, who, when asked why he robbed banks, replied: ?That?s where the money is.? Says Ruettgers: "We?re also focused on the banks, because that?s where the money is."
EMC has a large number of blue chip customers including banks and telcos but Ruettgers says the market has expanded and there is still room for a lot of growth.
"We?ve not fully penetrated the market," he says. "The first piece of business we do [with a customer] will never be the last piece of business."
The software EMC sells will also provide revenue growth because Ruettgers claims his company provides solutions for a data centre than no one else does. EMC?s software business exceeded 10 per cent of its total turnover in its second quarter, he says.
The results were also notable because EMC posted a 50.9 per cent gross margin - and this sort of figure is only attained by companies like Intel.
Ruettgers says: "None of our customers complain about it because of the total cost of ownership figures we deliver. Someone who buys EMC will have it around for five or six years and find that very important."
He says corporate customers know EMC is a stable company and that it will be spending over $1 billion on research and development over the next three years.
The nature of EMC?s relationship with hard drive manufacturer Seagate has always seemed clouded in mystery.
Seagate manufactures drives for EMC?s Symmetrix storage boxes. Ruettgers confirms that both companies are very close. "We meet once a quarter for a joint review and set milestones to make sure the organisations are both going in the same direction," he says. "No one wanted to do a 9Gbyte drive but Seagate did it for us after we persuaded them it was important. We help them design the products and they don?t try and shake us out." Seagate and EMC engineers are shared between the same companies, says Ruettgers.
So can EMC be on a par with the Intels and Ciscos of this world? Ruettgers believes it can and Wall Street seems to believe it too. EMC slightly delayed releasing its results last week to avoid being put in the shade by Compaq, Apple and Microsoft. But when it did release its figures, its shares rose on Wall Street to an all time high of $55. That makes Ruettgers, in his own words, as ?happy as the French were when they won the World Cup?.
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