Strategic Analysis Of Emc Corp. Essay, Research Paper
I say, Don t put all your eggs in one basket is all wrong. I tell you, Put all your eggs in one basket, and then watch that basket. (Andrew Carnegie, 1885)-Quote in EMC Annual Report
EMC: Mission Statement- To make information accessible across the computing enterprise, regardless of the source or the target.
EMC: Introduction
EMC Corporation, based in Hopkinton, Massachusetts. with 11,200 employees worldwide, is the world s leading supplier of intelligent enterprise storage and retrieval technology. EMC is a Fortune 500 company and was ranked ninth on Business Week s 1998 Info Tech 100 list of the world s best-performing information technology companies. In 1998, EMC had an annual revenue of $3.9 billion. EMC designs systems for open system, mainframe, and midrange environments. EMC is the only company in the world entirely focused on rapidly delivering intelligent enterprise storage and retrieval solutions. This enables companies and organizations to leverage their growing volumes of information into profitability, growth and competitive advantage. EMC Enterprise Storage systems, software products, and services are the leading information access and storage solutions for every major computing platform in today s business enterprise.
EMC was founded in 1979 by Richard Egan and Robert Marino (the E and M in EMC) as a supplier of add-on memory boards. EMC s rapid rise in the worldwide data storage market began its major surge in 1989, when the company revised its strategy to align itself with businesses growing reliance on increasingly vast and complex amounts of electronic data. In 1990 with the introduction of EMC s Symmetrix product line, EMC became the first company to provide intelligent storage systems based on arrays of small, commodity hard disk drives for the mainframe market. Since the in introduction of Symmetrix technology, more than 30,000 of these systems have been sold around the globe and EMC s annual revenues have grown from $190 million in 1990 to $3.97 billion in 1998. With the introduction of Symmetrix Remote Data Facility in 1994, EMC became the world s leading storage-based solution for business continuity and disaster recovery. EMC s portfolio of storage software includes EMC TimeFinder, EMC Data Manager, EMC PowerPath and Symmetrix Manager. With its $445 million in software revenue in 1998, this makes EMC one of the world s largest and fastest-growing software companies.
The major customers of EMC include the world s largest banks and financial services firms, telecommunications providers, airlines, retailers and manufacturers, as well as governments, universities, and scientific institutions. These customers rely on EMC s innovative storage solutions for such applications as online reservation systems, transaction processing, customer billing, year 2000 compliance, the Internet and corporate intranets, business continuance/disaster recovery, data mining and data warehousing. EMC has also formed alliances with the world s leading software, application and database companies, such as Microsoft, SAP, Oracle, Baan, and PeopleSoft.
EMC is a global organization, and is represented by more than 100 offices worldwide. The company manufactures its products in Massachusetts and Ireland. EMC has R&D facilities in Massachusetts, Colorado, Israel, and France. They also have Customer Support Centers in Massachusetts, Ireland, Japan, and Australia. EMC holds the most strict quality management certification from the International Organization for Standardization (ISO 9001) and its manufacturing operations hold MRP II Class A certification. The company trades on the New York Stock Exchange under the symbol EMC and is a component of the S&P 500 Index.
EMC: Top Level Management
Richard J. Egan- Founder and Chairman Egan is a founder of EMC Corporation.. He has served as Director since the companies inception in 1979. In 1988, Egan brought the company public and was elected Chairman of the Board. He held the position of President and CEO until January 1992.
Michael C. Ruettgers- President and CEO Ruettgers has held the position of President and CEO of EMC Corporation, since January of 1992. Ruettgers joined the company in 1988 as executive Vice President of Operations and Customer Service, and from 1989 he was EMC s President and Chief Operating Officer.
EMC: Company Timeline
1979- EMC Corporation is founded by Richard j. Egan and Roger Marino in Newton,
Massachusetts in August.
1981- 64 kilobyte chip memory boards are developed for Prime Computers.
1982- EMC corporate headquarters moves to Natick, Massachusetts.
-Annual sales surpass the $3 million mark.
1984- Five years after the company s founding, annual sales reach $18.8 million, nearly tripling
1983 results.
1985- EMC is first to commercially ship denser memory upgrades using 1-megabit Random
Access Memory (RAM) technology.
1986- EMC goes public in April; makes initial public offering on the NASDAQ stock exchange.
-Total revenues double over 1985 to $66.6 million; net income more than doubles to $18.6 million.
1987- Corporate headquarters relocates to Hopkinton, Massachusetts.
1988- EMC opens its European manufacturing facility in Cork, Ireland.
-EMC stock lists for the first time on the New York Stock Exchange in March.
1989- Second major US corporate facility is opened in Hopkinton, Massachusetts.
-EMC develops Direct Access Storage Device (DASD) subsystems with automated error
thresholding for IBM System/38 and AS/400 computers.
-Michael C. Ruettgers, is promoted from Executive Vice President of Operations and
Customer Service, to President and Chief Operating Officer. Richard J. Egan continues his
role as Chairman and CEO
1990- EMC redefines mainframes storage by introducing the Symmetrix 4200 Integrated Cached
Disk Array (ICDA), a 24-gigabyte RAID mainframe storage system that replaces traditional
14 DASD disks with the mainframe industry s first 5.25-inch disks. Performance is further
enhanced through 4-gigabyte cache and 32-processor controller cards.
-EMC institutes a Continuous Quality Improvement process, resulting in greatly enhanced product and process quality, as well as over $20 million saved to date (1995).
1991- Several enhancements to the Symmetrix ICDA product line give EMC the ability to compete
in the Online Transaction Processing (OLTP) environment.
1992- Michael C. Ruettgers is named President and CEO and the company s stock splits 2 for 3.
1993- EMC mainframe storage market share increases from 5% to 15%.
1994- EMC introduces the world s first terabyte box and the company surpasses the $1 billion
annual revenue mark.
1995- EMC introduces first Symmetrix storage systems for open systems and surpasses IBM as
market share leader in mainframe disk storage capacity.
1996- EMC becomes leader in the open storage market.
1997- EMC extends lead in the enterprise storage and retrieval market.
1998- The EMC Effect is felt across the computing enterprise.
1999- EMC Corporation announces two-for-one stock split.
EMC: Porters Five Forces:
There are five forces that shape competition in an industry, barriers to entry, power of suppliers, power of buyers, threat of substitutes, and rivalry & industry structure. These five forces that Porter developed have become a strong framework in helping strategic mangers find answers as to how, or why decision can have an impact on their firm, and the industry they operate in. When analyzed the collective strength of these forces show potential profits of an industry. The company being focused on is EMC, which is in the Computer Peripherals industry.
Barriers to Entry:
Barriers to entry are forces that firms must overcome in order to enter an industry. These barriers can be caused from high initial investment, product differentiation, cost disadvantage, access to distribution channels, or restrictive government policies. An example of this could be the phone, or cable companies. There are very few companies that are able to compete within this industry because of the high capital requirements to start off. An enormous amount of time and money would have to be spent on installing lines throughout the country to supply you customers with the services they want.
EMC is in a situation where it has created several barriers to entry. Capital requirements are one of the barriers that EMC has in its favor. In 1979 EMC started its business in data storage which it is now the leading company in its industry. It has offices all over the globe and is the only company in the world to be specifically focused on rapidly delivering intelligent enterprise storage and retrieval solutions. There are very few companies that can compete with EMC because of its name association and large international operation. New entrance into this industry would have to invest large amounts of time and money into research and development. EMC already has the technology and is constantly updating with more advanced services.
Another barrier to entry is product differentiation. EMC is specialized in enterprise storage, which is much different than conventional storage. While conventional storage has been used to back up memory in case of a disaster or, to log companies transactions, EMC started a niche which it has made into a new industry. Enterprise storage has six specific parts that set it aside from conventional storage. They are as follows enterprise connectivity, information centricity, cascadability, information management, information sharing, and information protection. It can be clearly seen that this industry is constantly changing, and new products are coming out every day. If you are not the leader in this new technology then you will not survive. EMC has without a doubt developed barriers to entry.
Threat of Substitutes:
The threat of substitutes is how easily a product can be interchanged with another. For example if you are going to buy bottled water you decision will ultimately come down to price. An expensive flashy bottle of water can easily be exchanged for a generic store brand bottle at a fraction of the cost. However with services it is a different story. Lawyers for example could easily be substituted if you were looking at the cost. It would be very simple to find a cheap lawyer, however you might end up losing your case. To get a top of the line service you will have to pay a little extra. EMC is a top of the line service which also offers a very affordable pricing strategy. Its pricing very sensitive with the companies it works with, whether you are a world dominating bank, or a newly started Internet company. EMC has something to offer everyone. What makes EMC even more attractive is its unmatchable customer service. Customers are always kept in close and frequent contact whether it be for unforeseen problems, or to validate new features. Customers have found that EMC offers the best of both worlds, and that no other company so far can be substituted for it. We need high capacity, fast performance, a scalable platform, and total data protections. With EMC, we found a complete solution from one provider. Says the General Manager of information technology, at Komercni Banka. This clearly shows the EMC has eliminated its substitutes by offering something that no one else can match.
Rivals in the industry:
Rivals in any given industry are a part of competition that businesses have to deal with. For the past several years EMC has not had to deal with many competitor since they offer services and customer support that surpasses any other company that has been looking to get into the the information storage industry. IBM, and Sun Microsystems are two companies that have recently been competing with EMC. These are both large established companies that deal in many different aspects of the technology industry. Both IBM and Sun Microsystems have begun to compete with EMC s self started indusrty. The reason for this is because they both have large R&D departments with large budgets that allow development of product comparable to EMC. However since EMC is so focused in their niche market they have a mixture between service and product quality that hasn t been matched by anyone. IBM Sun and the other competitor are not focused just on storage technology but they also have many other interest. This makes companies weary of handing over valuable information to a business that could be in direct competition with them. This gives EMC a competitive advantage over any other company since they are well known for tight security. Another advantage EMC has over its competitors is that they are now recognized as the standard: in computer information back up and storage area.
Organizations around the world know they can safely and confidently put all their eggs in EMC s basket. One Of EMC s slogans is that its good to put all of your eggs (information) in one basket as long as there is someone who s job it is to watch your baske t all the time. No other company has been able to make that claim yet, and until one does EMC will continue to lead the way through Information storage.
Power of Buyers:
Buyers have an enormous effect on how your company does its business. They can demand what ever they need, if you cant supply it they will look elsewhere to find it. Buyers want high quality low cost and unlimited services. If buyers gain too much control they can have negative effects on the companies profits. When substitutes are high buyers can easily drive down prices and demand better service, what ever company fulfills this need will end up prevailing in the long run. EMC has turned this process into their advantage. They have said to the customers tell us hat you want and we will find a way to do it at a low cost, with unbeatable service. Some of these customers put EMC up to a challenge of solving their IT problems.
Lucent Technologies challenged EMC to make an information system that would support their need in marketing, customer service manufacturing and global logistics. Lucent wanted all of these variable to be tied into each other so that they could gain a value on the information that they had available. The solution was that EMC did come up with a standardized way for Lucent to accomplish all of its need at a price that fits the companies budget. Another company that put EMC up to a challenge was Gillette. They wanted a quick and efficient way to bring new products to market and to stream line their business process. Gillette is one of the leading innovators in several different markets, shaving products are their main focus. The faster new innovations are brought to market the quicker the company can get real feedback from customers to make proper adjustment. This all leads to a better end product that is more profitable and higher quality than if it had taken years to develop. Once again EMC meet all the requirements that Gillette had asked for they used a standardized global network that ensured high quality and availability tied in with a software that guarantees availability scalability, and unparalleled management. Chief IT Officer says that EMC is the key to our overall IT strategy which is to be a better business enabler. One more customer that challenged EMC is Transco, which is in the oil and gas distribution business. They need to supply both globally and locally to many different distributor of different size. They need a solution that created a seamless network for every type of business they dealt with. EMC developed the proper software and storage capacity that made this seamless system work. This lead to Transco decreasing its risk in new projects, and enabling them to rapidly turn information into knowledge.
These examples have shown that even though buyers can have a tremendous effect on businesses, it can also be used to their advantage. EMC is able to offer their services from companies as large as America Online to small start up Internet companies with very little capital. Because of positive traits EMC has become a word that is synonymous with excellent service.
Power of Suppliers:
Suppliers can have a large effect on companies in an industry especially if there are limited amounts of suppliers. They can squeeze out profitability by raising prices to increase their own profits or even lowering the quality of their goods. Suppliers become powerful only if the buyer depends on the suppliers product as an important part of their final product.
Another way suppliers gain the upper hand is if there is few companies that supply the goods needed by an industry. Powers of suppliers in EMC s industry is low, this is because the hardware used comes mostly from technology already available. This means that it is easy for EMC to look for a supplier with the best prices that will offer the best services to them. The companies that supply EMC are major PC component builders. Teradyne is one of EMC s suppliers and what they have done is set up a small internal office. EMC has a direct watch over how their products are being manufactured
This allows them to make quick and efficient changes in production which leads to quicker product development and lead times to market. This is how EMC is set up with the majority of its suppliers. Because of these reason EMC has a lot of control over their manufactures, and the suppliers know that if they don t provide them with a competitive price that they are easily substitutable to many other companies eager to have EMC as a buyer.
Value Chain Analysis
EMC is noted for being recognized as the time-to market leader in delivering advanced storage and retrieval technology and information management and protection software to companies whose success depends on information. Using Porter s value chain EMC can be broken down into specific activities which contribute to a companies success or malfunction. Within the value chain analysis specific activities can be recognized as distinctive competencies. For EMC the distinctive competencies include inbound logistics and technology, research & development. These activities create strength relative to key competition.
Primary Activities
The first primary activity is purchasing supplies and inbound logistics. This is EMC s distinct competency for primary activities. EMC is dedicated to providing the best product possible, but they must be able to create an excellent product at a competitive price. Due to EMC s recent success, other companies have joined the industry to try and cash in. Two major competitors are IBM and Hitachi Data Systems Corp. These are two giant companies have extremely deep pockets, a big presence among mainframe users, and guaranteed supplies of drives from in-house manufacturing operations. In order to remain competitive with
Instead of paying for custom made parts, or building them in-house, EMC has found a way to integrate regular PC components into their systems. Every system that they build contains dozens of commercial DRAM memory chips and off-the-shelf disk drives made by Seagate Technology Inc. Along with this strategy, EMC is also able to make partnerships with supplying companies in order to better control the product that they are receiving.
An example of this is at Teradyne, which is a worldwide know component producer. EMC actually sets up a department in the Teradyne manufacturing plant which allows EMC and Teradyne to communicate to each other better. EMC can quickly provide Teradyne with any new information pertaining to the product that they need, and help implement and new procedures. This also gives EMC more control over the quality of their supplies because they can watch them being produced, and oversee the transportation of the products to EMC. This strategy along with using regular PC parts allows EMC to ride the always improving PC industry price-performing curve, while adding value via software. This is a distinct competency.
It was apparent to some of there customers that using these parts would create a poorer product than their competitors. They convinced Visa International in 1995 under the claims that their product could retrieve massive amounts of data without stopping, day in and day out, at speeds approaching 3,000 transactions per minute to try their new systems. Visa claims that EMC s product has cut by one third the time it takes to process $3 billion dollars worth of credit card transactions each night. EMC s approach to cost cutting is an innovative and strategic way to cut down on the cost of supplies while still guaranteeing the quality.
The second primary activity is the operations of EMC. EMC has major manufacturing plants in both Massachusetts and Ireland. In these plants are the reason why EMC is ranked fourth on what Barron s calls a unique ranking of America s best companies for investors. EMC holds the most stringent quality management certification from the International Organization for Standardization. Not only are they commended for their quality management, but also for its manufacturing operations, which holds an MRP II Class A certification.
Moving down the chain, the next primary activity is outbound logistics. EMC produces computer products for some of the most illustrious institutions in the world. These customers include the world s largest banks and financial service forms, telecommunications and internet service providers, airlines, retailers, and manufacturers as well as governments, universities, and scientific institutions. In order to successfully distribute their product, which is vital to these very important companies and institutions, EMC has set up a large system. This system includes over one hundred sales offices with distribution partners in over fifty countries. The product that they are delivering to their customers can sometimes be very complicated, they therefore offer a customer training catalog. EMC believes that their product becomes a strategic part of their customers IT infrastructure, and therefore they need information that will allow them to optimize its power and capabilities immediately.
The next primary activity is Sales and marketing. Why the boom in an old tech sector? Storage is exploding as companies build vast electronic warehouses to stash reams of sales, financial, and operations data from every corner of their businesses. The internet is also fueling demand for more storage. EMC is dedicated to providing its customers with the highest levels of product quality backed up by unparalleled worldwide customer service. We are committed to delivering enterprise storage solutions that cope with today s business challenges while building information strategies for the future. (Michael C. Ruettgers, President and Chief Executive Officer) In order to further improve their sales and marketing as well as their outbound logistics, they have also formed alliances with the world s leading software, application and database companies, including Microsoft, SAP, Oracle, Baan, and PeopleSoft. Revenue from EMC s software in 1998 was $445 million, making EMC one of the world s largest, and fastest growing companies. Their annual revenue has also surged from $190 million in 1990 to $3.97 billion in 1998. EMC is the information storage and management solution of choice for every major computing platform in today s business enterprise.
The final primary activity is service. When a company provides a software product to such important companies and institutions it is extremely important to be able to back it up with impeccable customer service. EMC supports and services its customers by combining the industries most advanced remote service technology with the global reach, hands-on expertise and everyday commitment to highly skilled service teams. They also have a built-in-service approach which is designed to detect errors before a situation reaches an extreme point and data unavailability occurs by using the latest diagnostic technology and telecommunications links that continuously monitor and report on the environmental status of each installed system. EMC s customer support also includes customer support centers in Massachusetts, Japan, Ireland, and Australia.
Support Activities
The first support activity is human resources. We are a rapidly growing, dynamic company where employees at every level can make a measurable impact on our business. This motivates us to do the best job possible and creates real opportunities to move ahead. (Kira, Project Manager) EMC employs over 11,200 people worldwide, including about 4,600 in Massachusetts. Characteristics that they look for include; integrity, sense of urgency, quality, communication, time-to-market, and focus. They offer their employees a wide array of benefits including; health plans, pre-tax spending accounts, disability plans, life insurance, investment plans, and other programs. EMC is the world s finest, financially successful, leading edge Enterprise Storage company – with a reputation for superior customer understanding, total quality, and highly talented people.
The second support activity includes Technology, Research & Development. This is EMC s distinct competency for support activities. This is one of the most important aspects of the company and one of their strongest competencies, because EMC has to stay on the cutting edge of technology to keep their software competitive. They have Research and Development facilities in Massachusetts, Colorado, Israel, and France. More than 70% of their engineers focus strictly on the development of software. EMC expects to invest over $1 billion dollars in Research and Development over the next three years. Analysts say EMC s technology gives it a two-year lead over competitors. Most of their rivals are still putting their products into one type of computer, but EMC s work equally with mainframe and PCs. That gives them a large edge in a market expected to grow from $10 billion in 1997 to $25 billion in 2002. They have also come up with a simple solution to the year 2000 problem. They will simply have all their customers back up the storage before the millennium. With all this technology, research, and development, some analysts believe that EMC could join Intel, Microsoft, Cisco, and Oracle as the next franchise company in technology.
The last support activity is general administration. General Administration is another strong aspect of this company. EMC is one of the World s 100 Best Managed Companies.
Lead by their founder/chairman Richard J. Egan and their President/CEO Michael C. Reuttgers, EMC is dedicated to providing its customers with the highest levels of product quality backed up by unparalleled worldwide customer service.
EMC: Financial Analysis
The ability to put information to work to achieve the most aggressive goals is what EMC refers to as The EMC Effect. The financial performance of EMC in 1998 is proof of THE EMC Effect. In 1998 EMC s revenues rose 35 percent over 1997 to $3.97 billion. Their software sales grew 152 percent to $445 million, making EMC the world s fastest-growing major software company and contributing to the rise in their gross margin to 51.5 percent. EMC s net income increased 47 percent to $793 million. On a diluted basis, earnings per share were $1.49, a 43 percent rise from 1997.
EMC s rise to the top didn t go unnoticed. Throughout 1998, investors, analysts, and journalists took note of EMC s rising revenue and profit growth rates, market and technology leadership, and remarkable customer loyalty. EMC s stock price rose 210 percent during 1998, lifting their market value by 29 billion, to a year end market capitalization of $42.8 billion. Their outstanding stock growth landed EMC on top of the New York Stock Exchange, outperforming all other S&P 500 companies in 1998.
This foundation of excellence explains why EMC s customer satisfaction is above 98 percent and why their customer retention rate is above 99 percent. This also explains why EMC is now viewed as a technology franchise company on the same level as Intel and Microsoft and a builder of the information infrastructure for the digital economy.
EMC currently leads the storage system market that they are in. Their competition is very difficult to observe because they are a very focused business where as their competitors are a lot more diverse. For instance, IBM and Sun corporations are both in the storage system business, but they are also in many other technological based markets. Therefore it is difficult to compare the two. EMC s business can be better compared to some company s that are in the computer peripheral industry. Those competitors are Quantum, Lexmark, Storage Technology, and Imation.
First of all, Quantum is one of their competitors and they are one of the highest volume global suppliers of hard disk drives for personal computers, Quantum is also a leading supplier of high capacity hard drives and the worldwide revenue leader among all classes of tape drives.
Storage Technology is also a competitor and they are the top provider of network computing storage. Storage Technology products and services store, transport, and secure more than 100 petabytes of the world s information, ranging from mainframe data to client/server applications to video, audio and still images
Lexmark is considered a competitor of EMC, but they are more focused in the printing system business. They are a fast-growing, global developer, manufacturer and supplier of printing solutions and products, including laser, inkjet and dot matrix printers and associated consumable supplies for the office and home markets. They are recognized in the industry for its user-perspective approach, and they are currently moving aggressively to meet the changing needs of today s business customers and other consumers.
Their final competitor is Imation Corporation which is a global technology company that creates system, product and service solutions for the handling, storage, transmission and use of images and information. In 1998, the company reported revenues of approximately $1.3 billion on continuing operations, and they also had a market presence in more than 60 countries. Approximately 45 percent of Imation’s sales are generated outside the United States.
A comparative analysis of 5 of the leaders in the computer peripheral industry, EMC, Quantum, Lexmark, Storage Tech., and Imation, will show us who has the competitive advantage in the market. Financial ratios are an excellent way to evaluate a company s financial statement. Ratio analysis is important for three main groups. Managers are the first group. Managers employ ratios to help analyze, control, and thus improve their firms operations. The second group is credit analysts, this group is composed of mainly bank loan officers or bond rating analysts. They analyze ratios to help ascertain a company s ability to pay their debts. The last group is stock analysts. This group is interested in a company s efficiency, risk, and growth prospects.
The first set of ratio s we will be analyzing are the Liquidity ratios, the current ratio and the quick ratio. The first ratio we are going to look at is the current ratio. The current ratio is calculated by dividing current assets by current liabilities. Calculating this ratio allows you to see a company s ability to meet short-term obligations. The current ratio provides the best single indicator of the extent to which the claims of short-term creditors are covered by liquid assets and because of this the current ratio is the most commonly used measure of short-term solvency. EMC is the front runner in this category. They have a current ratio of 3.92. Quantum is second with 2.83, Imation is third with a 2.1 current ratio, Lexmark is next with 1.57, and Storage Tech has the worst current ratio of the 5 companies at 1.47. The industry average is relatively high at 3.75. A high current ratio is a positive sign for EMC. Creditors like to see a high current ratio. It indicates that they have the ability to pay creditors if they start experiencing any financial difficulties. A high current ratio could be negative from the perspective of a shareholder. A high current ratio could mean that the company has a lot of money tied up in non-productive assets, such as excess cash or marketable securities. However, this is not the case when dealing with EMC. Their shareholders couldn t be happier.
The quick ratio is the next ratio we will be analyzing. The quick ratio is calculated by deducting inventories from current assets and then dividing the remainder by current liabilities. Inventories usually are the least liquid of a firm s current assets, hence those on which losses are most likely to occur in the event of liquidation. Due to this a measure of the firm s ability to pay off short-term obligations without relying on the sale of inventories is important. EMC is the leader of the 5 companies with a quick ratio of 3.08. Quantum is second at 2.12, then Imation at 1.15, next is Storage Tech. At 1, and Lexmark is last in this group with a quick ratio of .87. The industry average is 2.95. This exemplifies EMC s domination over their top competitors in this area. Having a high quick ratio is very appealing to creditors and investors and is just another reason why EMC s stock price is so high.
The next ratio we will by analyzing is the inventory turnover ratio. The inventory turnover ratio is calculated by dividing sales by inventories. This ratio allows us to see how many times a year the companies inventory is sold out and restocked, or turned over . Quantum is the front runner in this category with an inventory turnover ratio of 13.81. This is remarkable when comparing it against the 5 top competitors. Lexmark is second at 5.81, Storage Tech. is next at 4.53, EMC is fourth at 4.29, and Imation is last with an inventory turnover ratio of 4.17. This means EMC turns their inventory over 4.29 times a year. This number is just below the industry average of 5.49. A possible explanation for EMC s sub-par inventory turnover ratio is the fact that they lease a lot of their inventory instead of outright selling it. This could have a negative effect on their ratio.
Another important ratio to analyze is a company s Return on Assets. This is calculated by dividing net income available to stockholders by total assets. EMC is the leader in this category with an ROA of 21.85. Lexmark is second with an ROA of 20.31. The other three companies don t even compete in this analysis. Imation is at 5.07, Storage Tech. is at 0.21, and Quantum is a -1.06. The industry average is 18.06. EMC s high ROA reflects the company s high-basic earning power. The high ROA is a positive aspect of the company.
The last ratio we are going to look at is the return on common equity. This is a very important aspect of a company. This ratio is calculated by dividing net income available to common stockholders by common equity. This ratio is especially important to stockholders because this ratio is basically the rate of return on a stockholders investment. Lexmark s performance in this area is remarkable, they have an ROE of 52.98. The next nearest competitor is EMC at 29.71 which is a wide margin between first and second. Imation is third at 8.94, Storage Tech. is next at .42, and Quantum is struggling at -1.93 in last place. The industry average is 26.19. Both EMC and Lexmark are extremely attractive in this area. Anytime a stockholder is getting that kind of return on their investment they are going to be extremely happy.
A vital aspect of a company and a very telling statistic about a company is the company s stock price. EMC s domination in this area is overwhelming. As of Friday December 10th, 1999 EMC s stock price was $94.44. Lexmark is second at $75.86, Imation is currently at $30.81, Quantum at $23.19, and Storage Tech. is last at $18.19. EMC s high stock price reflects how well the company is doing and you could see how successful they are from our ratio analysis. They are industry front runners and there are no signs that anything is going to change. Their stock price rose 210 percent during 1998 and just continued to rise in 1999. EMC is the leader in the storage systems industry. A great reason for their success is attributed to their continuing production of new products. Almost 80 percent of EMC s revenue in 1998 came from products introduced in 1998.
EMC: Strategic Recommendations
After conducting our research on EMC it is evident that they are a highly profitable company and are far and away the leaders in their industry. However, we keep coming back to the question of whether or not their success will last. We feel that they have the ability to continue to succeed with some tampering of their current strategies.
A key recommendation we would make to EMC is for them to beef up their international sales staff. EMC has experienced tremendous success here in the United States and as international demand continues to increase EMC has to be able to meet expectations of foreign investors.
A key ingredient for EMC in their battle to stay a top the storage systems industry will be their ability to weather a price war. Right now t he demand for EMC open storage products is so strong that the company is able to charge twice as much as their competitors. However, it is believed that prices for open storage will begin to fall sharply as competition heats up. This could cloud EMC s prospects in much the same way that falling mainframe-storage prices in the mid-90 s caused EMC s stock to stall. One danger is the nimble new competitors at the low end of the market. Sales of storage systems for windows NT servers from companies such as Compaq Computer Corp. and Data General Corp., for example, should climb 34% annually for the next four years vs. 9.4% for the total storage market. Despite all this EMC appears better positioned than others to weather a price war. Falling prices are part of the computer storage industry and the lower prices could fuel demand for open storage.