EMC's Data Domain Acquisition: A Sign of Desperation

Jul. 28, 2009 7:33 AM ETDDUP, NTAP, VMW, DELL6 Comments
Naveen Selvaraj profile picture
Naveen Selvaraj
127 Followers

At the turn of the century, EMC Corporation (NYSE: EMC) was marked out as a company that would dominate the tech landscape thanks to its towering presence in storage networks.

It followed a model made successful by Cisco Systems (Nasdaq: CSCO): multiple tuck-in acquisitions in related areas and technologies to increase scale and addressable market size. It achieved considerable success over the last five to six years using that strategy.

Revenue and Operating Profits from 2003-08

Source: Gridstone Research

As tech spending increased at a healthy pace, an increased addressable market meant better top-line and bottom-line growth thanks to operating leverage. But, as with any strategy, the true test is when the chips are down.

Revenue and Profits - Last Twelve Quarters

Source: Gridstone Research

Revenue in the last two quarters has been below or at 2007 levels and revenue growth has been hard to come by. The saving grace for EMC is that with its increased installed base of products, services revenue was growing despite a fall in product revenues over the last four quarters.

Revenue and Profit YOY Growth - Last Twelve Quarters

Source: Gridstone Research

This is not sustainable as only more product sales will beget more service revenues since EMC's service revenue streams - maintenance, installation fees etc. are not recurring revenue streams in the long-term.

In its defence, the acquisitions were to diversify revenue by not depending solely on storage box sales and related services. EMC's game plan was to move from only box sales to increasing its share of the dollars that went into managing storage networks that were becoming bigger and more complex.

It does sound nice on paper but this goal has also been only partially achieved as storage sales continue to be a dominant chunk (~70%) of revenues. All technologies and product areas which

This article was written by

Naveen Selvaraj profile picture
127 Followers
Naveen Selvaraj works as a sector analyst at Gridstone Research (http://www.gridstoneresearch.com/).

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