EMC’s Data Domain Profit Margins Expected to Remain Strong

Aug.16.10 | About: EMC Corporation (EMC)

Trefis members have created forecasts for one key driver of EMC (NYSE:EMC) over the last week: (1) Data Domain Gross Margin. The member forecasts suggest that Data Domain Gross Margin will trend in line with the Trefis forecast.

EMC added the data de-duplication business to its portfolio by acquiring Data Domain in July 2009. Data de-duplication is a storage technology that eliminates duplicate files so that data storage takes up less space. EMC competes with NetApp (NASDAQ:NTAP) and Oracle (NASDAQ:ORCL) in this space. We currently have a Trefis price estimate of $26 for EMC’s stock, about 31% above the current market price of around $19.

We estimate that the Data Domain division accounts for around 8% of the $26 Trefis price estimate for EMC’s stock. Hence the stock is not very sensitive to Data Domain Gross Margin. Below is a chart showing recent estimates created by Trefis members for the one driver in detail.

1. Data Domain Gross Margin

The average of Trefis member forecasts for Data Domain Gross Margin indicate an increase from around 74% in 2010 to 79% by the end of the Trefis forecast period, in line with the baseline Trefis estimates. In the past, Data Domain Gross Margin increased from around 69% in 2006 to around 73% in 2009. The member estimates imply a small downside to the Trefis price estimate for EMC’s stock.

Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of EMC’s stock to Data Domain Gross Margin.

Our complete analysis for EMC’s stock is here.

Disclosure: No positions