EMC CEO evaluates the storage terrain

At EMC Corp.'s Analyst Days earlier this month, CEO Joe Tucci sat down with Network World senior editor Deni Connor to talk about market conditions and the challenges EMC faces, such as increased competition in the high-end storage market from IBM, Hitachi Data Systems Corp. and Sun Microsystems Inc.

Q: EMC said in its public earnings call two weeks ago that the recent downturn in its business stemmed from IS buyers not purchasing as much as before. Does that imply that the growth of EMC is limited to the rate of IS spending?

A: Yes, whatever the rate of spending is in storage. All ships go down as the tide goes out, right? Certainly the budgets in IT have decreased. Storage is a capital item. Now you are getting a lot more storage for less money.

Q: At what point would competition have a significant impact on EMC? Is it when gross margins fall? When competitors' sales reach a certain percentage of overall sales?

A: All of those. If we feel that we are losing significant gross margins over a protracted period of time because we're discounting to beat competitors, then that is a competitive threat. Or if a competitor moves from 10% to 15% of the market, obviously that is a competitor gaining ground -- it may not be so bad, but you grew less.

Q: Who do you think is likely to be a competitive threat?

A: We have to keep an eye on the upcoming start-ups. Certainly IBM and Hitachi Data Systems compete with us. We don't take any competitor lightly.

Q: Other companies are turning to indirect sales channels, such as business partners, to complement their direct sales forces. Do you expect to expand your channel sales?

A: Yes. Our Clariion sales, which are through the channel, amount to 20%.

Q: Most of EMC's sales are in software. However, a lot of customers are tired of paying what they see as outrageous prices not only for initial purchase, but for maintenance. What is EMC doing to resolve that?

A: We've lowered our maintenance pricing to 15% of the software. That's very competitive.

Q: If there is minimal margin in hardware and if people stop buying EMC software, where is EMC going to make its profits?

A: We're not going to if that happens. We don't believe that hardware is a commodity. There's a lot of technology in hardware, and we still believe that you need great software functionality on top of that hardware.

Q: Software amounts to 30% of revenue at EMC. Analysts believe that EMC has a finite window where it can dominate the storage software market if it is truly able to manage a lot of heterogeneous platforms. How do you take a company that has been focused on hardware and transition it into a software one?

A: We're supplying software, hardware and services as a bundle to solve problems. We are going to let the services and software components extend to supporting other vendors' hardware. That is a competitive advantage and a great strategy for us.

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