NEW YORK (CNN/Money) -
In the eyes of most companies, data storage manufacturer EMC has always been kind of a square -- as in the square, refrigerator-size servers that EMC manufactures to store vast quantities of data. On April 29, however, the company, which is based in Hopkinton, Mass., unveiled a radical departure in its product line, one that it hopes can boost the sagging fortunes of this once high-flying company.
Here's how far EMC (EMC: down $0.19 to $8.95, Research, Estimates) has fallen: It posted a net loss of $508 million for the first quarter (compared with a net income of $1.8 billion in 2000) and, on April 26, joined the shameful but growing "90 percent club" -- public companies whose share price has plummeted 90 percent from a previous high. EMC's stock is currently hovering at around $9.
Rather than resorting to reverse-split chicanery to soften the financial blow, EMC is instead betting on a new technology that most analysts predict will see incredible growth in the data storage market. Its new product, a pizza-box-shaped unit called the Centera, stores "fixed data" more efficiently -- and cheaply -- than any other existing technology.
Unlike fast-moving transaction data, a company's fixed data -- for example, corporate e-mail archives, medical imaging data, or online check imaging and billing information -- stays put, and thus requires a less expensive means of storage. In recent years, tape has been the best way to store fixed data. While tape is considerably cheaper than servers, and relatively maintenance-free, it's not particularly network-friendly -- and the process of migrating immense quantities of fixed data onto the pricey servers that EMC sells is thus far proving to be too expensive.
Enter the Centera, which houses multiple hard drives and is designed from the ground up to store fixed data. Using relatively inexpensive drives, it brings the fixed-data storage cost to below a nickel per megabyte (the industry average for tape-based systems), and it tosses in extra software, hardware, and services at no additional charge. The Centera also relies on software to store data only when it's needed. For example, if someone sends out 500 copies of a 10MB PowerPoint presentation, the Centera won't store all 500, but just one.
"The Centera is one of the true market breakthroughs," says Bob Zimmerman, VP for research at Giga Information Group. "I was blown away by the price." The Centera launch "establishes EMC as an early leader in addressing this type of info," adds Peter Gerr, research analyst at Enterprise Storage Group, a research firm based in Milford, Mass. In 2005, ESG predicts, 54 percent of all information will be "reference information," as it calls fixed data.
Of course, my guard goes up whenever analysts start using adjectives like "stratospheric," but most people who are talking about this sector are bullish on its prospects. Jim Rothnie, senior VP and chief technology officer of EMC, laughs and acknowledges that he has seen some wild numbers. "But we're comfortable with the conservative estimate that this will be a $3 billion market in 2003 and a $10 billion-plus market by 2005," he says.
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While other manufacturers have launched smaller, industry-specific products aimed at fixed-data storage, EMC is the first company to launch an entire platform around it. Mike Zisman, general manager of IBM's (IBM: down $0.41 to $83.35, Research, Estimates) storage-software organization, says IBM will take a different approach to fixed data when it launches its "virtualization engine" product next year, but he acknowledges that fixed-data storage is a rapidly growing sector.
Can the Centera turn EMC around? It's too early to tell, since the company shipped only a handful of units to beta testers last quarter, but analysts point out the edge that EMC has with its early announcement. "It's a significant advantage. Being first to the market, EMC gets to define the boundaries," says Giga's Zimmerman.
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