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Must-know: Elliott Management's new position in EMC

Part 5
Must-know: Elliott Management's new position in EMC (Part 5 of 9)

Why EMC’s high-end storage systems revenues are declining

EMC’s high-end storage systems declining

EMC (EMC) shares have rallied recently on news that Paul Singer’s activist hedge fund Elliott Management has accumulated a stake worth over $1 billion in the storage giant. According to unconfirmed reports, the fund expects to unlock shareholder value by splitting up the company and selling its parts, including its stake in its listed cloud and virtualization software unit VMware (VMW).

EMC revenue segmentsEnlarge Graph

EMC’s traditional storage business has seen sluggish growth with data storage trends indicating a shift to flash and cloud based technologies. In the 2Q14, EMC’s high-end storage product business saw a 14% decline, but excluding the high-end business, Information Storage revenue grew 7% year-over-year (or YoY)—which EMC said is faster than the industry growth rate. Emerging Storage revenue grew 52% YoY, based on demand for technologies such as the EMC XtremIO all-flash storage array, EMC ViPR software-defined storage, and EMC Isilon scale-out storage. EMC said ViPR adoption continued with the number of customers doubling in the second quarter compared to the 1Q14.

In September, 2013, EMC launched the new VNX Series, which was an upgrade on the previous generation. It included a flash-centric design to enable flash-optimized performance for virtual applications and cloud deployments. 2013 also saw the launch of XtremIO, which the company said was the industry’s first all-flash array to provide consistent and predictable high performance to any application workload over any period of time. The company also added a new line of PCIe-based flash cards to accelerate application performance of the Xtrem Family of flash-optimized server and storage products. EMC entered the software defined storage space with the ViPR Software-Defined Storage platform launch in 2013. ViPR is a new open storage platform that easily integrates with VMware-based environments. It will enable organizations to centrally access and manage EMC and heterogeneous physical storage infrastructure.

EMC recently announced the VMAX3 enterprise data service platform family and major enhancements and innovations to XtremIO. It also acquired TwinStrata, which will be used to deliver new embedded cloud access capabilities. The release said “TwinStrata’s advanced cloud tiering technology allows customers to move infrequently accessed data to the public cloud for lower total cost of ownership.” TwinStrata supports many of the leading public cloud providers such as Amazon Web Services (AMZN), AT&T Synaptic Storage, Seagate’s EVault, Google (GOOG), Rackspace, and OpenStack.

EMC maintains lead but sees decline in share of total open networked storage market 

The International Data Corporation (or IDC) noted that worldwide external disk storage systems factory revenues fell 5.2% YoY to $5.6 billion during the 1Q14 mainly due to a 25% fall in high-end storage spending. Other factors included a “mainstream adoption of storage optimization technologies, a general trend towards keeping systems longer, economic uncertainty, and the ability of customers to address capacity needs on a micro and short-term basis through public cloud offerings.”

The IDC said that although EMC retained its leadership in the total open networked storage market with a 31.5% revenue share, it lost share compared to the 33.4% in 1Q13. The total open networked disk storage market—NAS combined with non-mainframe SAN fell—3.9% YoY to $4.9 billion in revenue, IDC said. NetApp (or NTAP) was the second largest supplier with 17.3% share, followed by Hewlett-Packard (HPQ) at 8.9%, IBM at 8.6%, and Hitachi at 8.3%, all of which tied for the third spot.

 

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