Storage: the EMC way: CEO Joseph Tucci focuses on stormy storage market - Cover Story

Communications News, Jan, 2002 by Sean Kelly

Joseph Tucci has proven anything, it is that he can weather storms. The president and CEO of storage leader EMC came on board at Wang Global in 1991 at its nadir--when the midrange computer manufacturer was in the throes of Chapter 11 bankruptcy.

"You saw a great company that owned office automation, word processing and e-mail, and obviously lost its way," he recalls. "By that time, Wang had lost so much lead, it would have been impossible to catch up."

Wang's dilemma gave Tucci a valuable lesson in keeping a company on the edge. "One of the things you learn is that what got you there won't keep you there," he says. "You've got to keep pushing the envelope every day."

To revive Wang, the company was totally reinvented into a network-and-desktop service provider. With this strategy, Tucci guided Wang out of bankruptcy. The company went on to acquire 10 companies from 1995 to 1999, and to reach 20,000 employees and $3.5 billion in revenue by June 1999, when it was acquired by a Netherlands-based IT services company.

"That was a major reinvention," he reflects on Wang and its lessons for his new post at EMC, "but if you do your job right, you can stay in your own field--but continually reinvent what you're doing. You don't want a company to get stale. You want to bring it into doing new things."

At first glance, Hopkinton, MA-based EMC--ranked #216 in the Fortune 500--hardly qualifies as a battered company in need of redirection. With sales of $8.87 billion in 2000, a 32.1% jump from 1999, EMC's share of the information storage system market increased to 34.6%--three times more than any other supplier. EMC increased its storage software management market share from 19.9% to 25.5% the same year. "We're clearly leading in software, and we're at least growing the fastest, and we're one of the largest players in services," he adds.

Tucci says that EMC's projected revenue market share in networked storage--identified by IDC as the fastest-growing segment of the storage market--is 38.9%, more than the combined revenues of the next three vendors.

The downturn in the technology market, however, has made even the storage market rough. "Maybe timing is everything in life, and I arrived with the wind chill of the bad economy," ponders Tucci, who first joined EMC in 2000 as president and COO, before ascending to CEO a year later. "Previously, the company was accustomed to working in a terrific economic environment.

"In the first half of 2001, the demand for information was still doubling," he observes. "Clearly, that slowed down in Q3, partially due to economic conditions and significantly due to Sept. 11. The rate is still growing, but not doubling."

EMC has taken a hit in 3Q of 2001, with quarterly revenues dropping to $1.21 billion from $2.28 billion the previous year. The company recorded a net loss of $945 million in the quarter--its first loss in more than 10 years. IDC projects EMC will lose 6.2 percentage points of market share in external storage hardware, dipping to 25.3%, as competitors IBM and Compaq pick up some ground. With sales at $5.6 billion through the third quarter of 2001--down from $6.25 billion at the same time the previous year--EMC has tightened its belt, with plans to reduce its worldwide workforce by 4,000 to about 19,000.

"When the market contracts as fast as it did, that's a lot of change," he says. "We've done some reductions of staff, some refocusing of our business units. You have got to make some tough choices, but in the long run it's going to be the right thing to do."

Tucci, however, says that EMC will push forward with an aggressive strategy, even with a bad economy. "I've talked to numerous CEOs around the world. There's some optimism beyond six months." For the immediate future, he projects, businesses will "button down, tighten expense control, really hit the fundamentals of their business, and watch inventories."

The economic downturn, in fact, could work in EMC's favor. "Actually, I think it's a good opportunity for us to take market share," Tucci notes. "We don't have many competitors that are focused on this marketplace with the firepower that we have. Whether it's 6,000 people selling, 6,000 people in service, $5 billion in cash or $35 billion market capital that's dedicated solely to make storage our one-and-only business interest--that's tremendous strength, and shame on us if we can't capitalize on those strengths to get a business lead."

According to EMC's 3Q financial statement, the company has $2.31 billion in cash and short-term investments, $1.27 billion in accounts receivable and $2.66 billion in long-term investments.

A major strategy in capitalizing on EMC's strength is providing network storage, which Tucci calls the future of the storage market. He points to IDC's predictions that more than half of all disk-storage systems will be purchased in either network-attached storage (NAS) or storage area network (SAN) configurations in 2003--growing to two-thirds of the market by 2005.

"The tremendous growth of information is driving the need for businesses to make this information more accessible," he notes, "and the need for companies to more efficiently manage this information. The only way to do so is to have it networked."