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Does EMC Stock Hold Potential for Investors?

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Nov. 20 2020, Updated 12:44 p.m. ET

EMC leads the Disk Storage Systems space

With a $50 billion market cap, EMC (EMC) is a leading player in the storage space. According to an IDC (International Data Corporation) report, EMC commanded a 22.2% market share in the global disk storage systems space. It’s followed by HP—it held a 13.8% share. Although the top three players—EMC, HP (HPQ), and Dell—in this space grew their revenue, they fell below the overall market growth rate of 7.2%.

The above chart shows leading players’ market share in the disk storage systems space based on revenue. If you’re bullish on EMC’s stock, you could invest in the Technology Select Sector SPDR Fund (XLK). XLK invests about ~1.27% of its holdings in EMC.

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Pressure looming over EMC’s organizational structure

In 2014, EMC received an interest. It also had pressure to change its federal structure from Elliott Management—an activist investment firm. Elliott Management took a $1 billion stake worth ~2% in EMC in 2014, with the likely intention to urge EMC to spin off its 80% share in VMware.

However, according to a Wall Street Journal article, the pressure that EMC has been exposed to from Elliott Management eased when the investment firm agreed to a “standstill agreement” until September 2015. Also, EMC chose two new directors in consent with the Elliott Management to please the investment firm.

The majority of EMC’s growth came from VMware and Pivotal. If it’s forced to split, it will significantly impact its growth and profits. As a result, this will impact its shareholders and investors.

Shareholder activism is a significant concern for EMC—as we already saw in 2014, when leading technology players Ebay (EBAY), Hewlett-Packard (HPQ), and Symantec (SYMC) succumbed to their pressure.

Fiscal 2015 expectations

In its fiscal 1Q15 earnings release, it lowered its expectations. Now, it expects its revenue and EPS (earnings per share) to be $25.7 billion and $1.91, respectively. Earlier, in January 2015, it expected its revenue and EPS to be in the range of $26.1 billion and $1.98, respectively.

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