Delays Send IBM's Shark Aground

FRAMINGHAM (04/18/2000) - IBM Corp.'s Enterprise Storage System, code-named Shark, lost a lot of steam when key features were delayed six months. Analysts say these delays won't hurt IBM [NYSE:IBM] on Wall Street because storage is a relatively small part of its total revenue.

But they will improve the already rosy prospects of Hopkinton, Massachusetts.-based rival EMC Corp. [NYSE:EMC]. Analysts say EMC now has more time to expand its control in the enterprise storage systems market, where EMC leads the pack with its Symmetrix enterprise storage system.

IBM had promised to deliver native Fibre Channel support and several versions of remote copy by the first quarter of this year. It now says those functions will ship in the summer or fall.

Functions such as Fibre Channel connectivity and peer-to-peer remote copy would have helped IBM compete more effectively against EMC had they been available when the product shipped last September, said Gary Helmig, an analyst at SoundView Technology Group Inc. in Stamford, Connecticut. EMC's Symmetrix already supports those functions.

Customers want Fibre Channel rather than SCSI for its faster throughput and its ability to support storage-area networks and network-attached storage, both of which are becoming more common, according to Shebly Seyrafi, an analyst at A.

G. Edwards & Sons Inc. The IBM version that shipped was on time but "functionally deficient," Helmig said.

But EMC isn't acting complacent. It will soon launch a new version of Symmetrix, and it continues to acquire software companies such as Alexandria, Virginia.-based Softworks Inc. to bulk up its software offerings. Technology and financial analysts also speculate that EMC may buy troubled Legato Systems Inc. [Nasdaq:LGTO], a Mountain View, California-based enterprise storage software provider.

The positive news for IBM is that storage accounts for only 2.6% of its $24.2 billion in revenue, which was hit by slower server sales. According to analysts, IBM must turn around its server business in the second and third quarters to impact its storage business.

"If they come through according to plan, it will be a positive for the stock," said Jeffrey Maxick, an analyst at Chicago-based Madison Securities Inc. "IBM can't afford to take any stumbles, because EMC doesn't stumble."

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