EMC (NYSE:EMC) is a world leader in high end data storage solutions and develops, delivers and supports the Information Technology (IT) industry’s infrastructure and virtual infrastructure technologies and solutions. Although historically EMC was more of a data storage company, it has increasingly branched out beyond data storage by acquiring a range of smaller companies and has become one of the largest provider of enterprise software in the world. Product offerings include software encryption and security products (RSA Security, Network Intelligence), content management for internet businesses (ProActivity Software Solutions), and operating system virtualization software (VMWare) markets.
The company operates in two segments: the Information Infrastructure business and the VMware Virtual Infrastructure business (VMware Inc. (VMW)). EMC owns 87% of VMware Inc. (VMW), whose stock went public in August 2007
The company is dependent on technology capital spending by its customers and is therefore highly sensitive to economic declines; IT spending is often one of the first items cut during a downturn. EMC has spread the risk of regional economic slowdown by expanding its geographic footprint. A significant portion of its revenues came from outside the U.S., and EMC has made investments in China to support a potential increase in IT demand in the region.
Headquartered in Hopkinton, Massachusetts, EMC develops, delivers and supports the Information Technology (“IT”) industry’s broadest range of information infrastructure and virtual infrastructure technologies and solutions. Because hard drives are the slowest component of modern computers, and many large scale businesses need to store data in a centralized place, problems arise. As a result, many businesses focus a tremendous amount of capital on high performance hard drives. Industries particularly affected include health care, telecommunications, internet retailers, electronics, and financial services. EMC serves these customers' needs.
The core of EMC's customers are large businesses that rely on high end data storage solutions to manage e-mail, inventory, supply chain, backups and regulatory and compliance information (e.g., Home Depot (HD), Panasonic, Toyota Motor (TM), JetBlue (JBLU), ING Group (ING)). EMC also acts as a consultant for its high end storage products, providing support, services, maintenance, and help integrating these systems into the business.
The company operates in two segments: i) Information Infrastructure Business, and ii) VMware Virtual Infrastructure Business.
EMC's Information Infrastructure Business provides the storage, protection, and guidance for customers' data and information. Within this segment, EMC further breaks down into three subsegments: i) Information Storage, ii) Content Management and Archiving, and iii) RSA Information Security.
VMware is the leading provider of virtualization solutions from the desktop to the data center and to the Cloud Computing. Virtualization is a technology that lets multiple operating systems run on a single computer, and it has a few large implications:
Because of the advanced technical details and administration overhead of virtualized computer fleets, VMWare has strong customer lock-in and high profit margins. EMC IS CUSTOMER CENTRIC
EMC makes most of its revenues from business-to-business sales, thus exposing the company to significant dependence on other businesses' capital expenditures. Expenditure on IT infrastructure is usually among the first items cut during economic declines. For this reason, EMC shows significant market sensitivity.
EMC is a major international player. In addition to bringing in diversified revenue streams, EMC has made a significant bet on China. It has partnered with Oracle (ORCL) to establish a technology center in China for the display and development of their products. It is the first such center outside of the United States and Europe for the two companies and implies a future emphasis on the Asia-Pacific market. EMC has also begun spending on a $500 million facility in mainland China to focus on software development research. This should allow EMC to tap the large number of highly educated engineers in China, who often command salaries significantly lower than equivalent workers in the US and Europe. These endeavors should allow EMC to tap into the strong expected growth of IT in the region, especially if Asia-Pacific grows at a significantly faster rate than North America and Europe. EMC may be well positioned to take advantage of this Pacific boom with roughly half of its existing revenues already coming from overseas.
EMC has significant competition from other IT infrastructure providers and consulting companies such as Hewlett-Packard Company (HPQ), IBM, Unisys (UIS), Network Appliance (NTAP) and Hitachi (HIT). These competitors have comprehensive offerings and consulting services that compete with EMC's main business lines. Additionally, these competitors all offer more comprehensive computer hardware, as well as consulting and support services that make them attractive alternatives for businesses that seek broader services. In addition, lower end storage devices are producing significant speed improvements, bringing pressure from the mid-range storage market.
The virtualization market is less mature than hard drives but is also facing increasing competition. While VMWare has a lead in virtualization business with a significant portion of the total market share, threats are coming from several significant directions. Microsoft (MSFT) has placed a bet to offer products that run its proprietary operating systems exclusively. On the other hand, open source providers are entering this fast-growing sector. Already XenSource, an open source provider, has developed products with support for Windows operating systems and presents a viable alternative to VMWare.