Analysts split on EMC layoffs, third-quarter loss

Analyst reaction was mixed to EMC's announcement yesterday that it expects a third-quarter loss and a second round of layoffs by the end of this year, with at least one analyst saying the company has lost it vision.

Joe Tucci, president and CEO of the Hopkinton, Massachusetts-based company, blamed the low sales projections and a layoff of 2,400 workers, or roughly 10 percent if its workforce, on "economic deterioration" that has caused reduced customer spending.

"At our current expense run rate, breaking even would require approximately US$1.8 billion in revenue this quarter," Tucci said in a statement. "EMC's cost-reduction efforts will be sweeping in scope, encompassing our workforce, real estate, certain inventories and other areas."

John Webster, a storage analyst at Illuminata Inc. in Nashua, New Hampshire, said that while the economy has had an impact, he believes EMC in the two months has embarked on a negative marketing campaign against its rivals that may be leaving customers with a bitter taste in their mouths. "Personally, I think they've lost their vision," he said.

Compaq Computer Corp. led EMC in unit sales last year, which it has claimed is the real measure of success. For example, Compaq shipped 24,000 storage-area network units last year, which is 48.5 percent of the market.

Meanwhile, market research firm Gartner Dataquest, in Stamford, Connecticut, said EMC's revenue last year in the overall external storage market totaled $5.3 billion. Arch-rival Compaq's revenue in the same market was $1.8 billion. And EMC held 32.7 percent of the market in external storage, compared with Compaq's 11.3 percent.

EMC spokesman Greg Eden said the layoffs are due solely to the economic slowdown and that the company won't be changing its marketing course.

"We've said and maintain we're not backing down from our focus on storage systems and software and the networking of information storage," said Eden.

Eric Sheppard, a network storage analyst at International Data Corp. in Framingham, Massachusetts, also disagreed that EMC has lost its marketing prowess, saying EMC's projected loss has everything to do with macroeconomic conditions.

"We anticipate the hard-disk storage market will shrink between 6 percent and 10 percent by the end of calendar year 2001," he said.

Steve Duplessie, an analyst at Milford, Massachusetts-based Enterprise Storage Group Inc., said, "There aren't many people making their numbers right now in this business and plenty of others.

"When the economy hits the skids, the name of the game is market share," he said. "Because when the clouds lift and people start buying again, the company with the biggest footprint gets the lion's share of the money as it starts to flow again."

Duplessie also praised the layoffs, saying the move was "prudent" and somewhat overdue.

In May, EMC laid off 1,100 workers, saying that they were its first bona fide layoffs this year. However, those layoffs followed the dismissal of several hundred workers in February that the company described as "performance management cuts."

The data storage vendor's worldwide workforce is expected to total approximately 21,000 by the end of the year, down from its current employee base of approximately 23,400.

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