On March 10, 2009, EMC held it's 'annual' meeting for the sell side and buy side analysts community (the first such meeting in 33 months). Wikibon attended with approximately 200 individuals who heard EMC's Chairman and CEO Joe Tucci present with Paul Maritz, CEO of VMware, in the morning session. The afternoon consisted of three breakout sessions: An update on the core storage business; cloud computing, and content management and security.
The meeting was designed to provide a roadmap to EMC's future and contained no financial guidance whatsoever. What follows is a summary of the meeting.
At the meeting, EMC's leadership position in storage was underscored by three factors: The company's aggressive posture toward using its financial clout to invest in the future and gain share in a downturn; its consistent track record of execution; VMware. The first two have been staples of EMC's game plan for years, but for the first time EMC has made its intentions clear regarding virtualization as the underpinning of its vision.
EMC with VMware is making a big bet on so-called private cloud computing, a set of policy-based infrastructure services that encapsulates both internal and external cloud services. Much is uncertain about this vision; however it is clear this roadmap will take years to evolve and will attract competition from the likes of Amazon, Google, Microsoft, IBM, HP, Sun and perhaps others.
According to Tucci, EMC's TAM is approximately $75B worldwide, and the company is number one in the segment. Its fundamental strategy is to pursue what it calls information infrastructure (EMC) and virtual infrastructure (VMware) and leverage the intersection of the two. Tucci was clear at the meeting that EMC has no intention of separating the companies or their strategies.
Since 2002, EMC has grown from a $5B company that was shrinking dramatically and losing money to a $15B firm with some impressive CAGR figures over the 2003-2008 period, including:
- 19% revenue growth,
- 36% increase in net income,
- 20% increase in free cash flow.
With regard to 2009's outlook, Tucci and other EMC executives revealed very little, saying that their visibility on demand for the year was poor and the outlook uncertain. Tucci cited the fact that economists aggregate forecasts call for a 1% decline in GDP, the first since WWII. EMC's operating assumption is that global IT spending will decline in the mid-to-high single digits.
Tucci indicated that CIO's have shifted to a 'buy just enough to get by' mindset and are tending not to take advantage of longer term deals that offer price concessions. Many CIO's, according to Tucci, still don't have their budgets set for this year, and those that do are only buying what they need.
Tucci indicated that EMC will operate on the following seven principles in 2009:
- Maintain an external focus;
- Gain significant share;
- Retain/attract key talent (not cutting sales);
- Sharpen financial discipline (EMC plans to save $300M in '09 and $500M in '10);
- Sharpen product edge by investing 12% of revenues in R&D;
- Use M&A to strengthen the portfolio and position in the market;
- Communicate consistently.
Tucci indicated that tape-based recovery is basically dead, and in Q4, EMC generated $90M in data de-duplication revenue, a 300% year-on-year growth rate, which surpasses Data Domain and makes EMC the category leader.
Tucci cited five growth areas for 2009 and beyond:
- Server virtualization - for every $1 of virtualization there are $3 of storage at the backend;
- FCoE which brings the Fibre Channel protocol to Ethernet, centralized management, and lower cost of connection;
- Cloud-based storage;
- Data center efficiency (aka Green) - through tiering and spindown;
- SSD and flash-- total game changer as price drops.
As it pertains to flash, Tucci indicated that prices had dropped 75% since product introduction and will continue to decline faster than FC spinning drives.
Tucci indicated the next big things in IT from EMC's perspective are the following:
- The virtual data center;
- Cloud computing;
- Virtual clients;
- Virtual appliances (i.e. applications placed in a container).
EMC's strategy in the data center is to encapsulate new and existing applications in a single EMC offering and enable interactions between internal and external clouds via a virtual data center operating system.
This set the stage for Maritz to put forth VMware's vision thing.
Action Item: EMC customers will increasingly see the company put forth a dizzying set of offerings from its ever-expanding portfolio. Users should approach EMC as a strategic partner and manage negotiations as a project, ensuring total visibility on all EMC-related initiatives and coordinating activities to gain the most leverage from investments.