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February 9, 1999

Stocks Fools Love

EMC Corp.
by David Forrest (TMF Bogey)

Trading at 99 1/2 as of February 8, 1999

Don't let the fancy name and high-tech gadgetry fool you. EMC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> is a computer and network storage products company dedicated to "space" and "speed." Sure, it might use big words like Integrated Cached Disk Array and Large-scale open systems, but the bottom line is that EMC specializes in selling lots and lots of storage capacity to big companies. In a recent Stock Talk interview with the Fool's Brian Graney, EMC's Michael Ruettgers (CEO) said:

"...we make the filing cabinets that store all of the information that the world's largest companies use for running their businesses. If you look at popular topics now like the Internet and e-commerce and e-business, one of the things [new investors] might want to understand is that all of that information needs to be stored someplace. So, as these websites get bigger and bigger, we find companies coming to us to store those things."

Every speck of information you see online has to be stored somewhere. Every bit and byte. EMC handles the big boys like airlines, banks, retailers, large Internet service providers, etc.

Now, you may be familiar with other storage companies, too. No doubt you've heard of Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, Quantum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %>, and Western Digital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>. They are also "storage companies." So what's the difference? Size. EMC handles volume unlike any of its competitors and it does it FAST. The larger the amount of info you need to store, the fewer options you have. Companies like Iomega and Quantum make smaller-scale storage solutions. EMC deals with the monster needs of huge institutions. We're talking terabytes (a trillion bytes) here, not megabytes.

As we become even more reliant on computers and conduct more transactions online, the need for more storage space won't go away. And, as you know, everyone wants to do things quickly, so EMC is in a great position to capitalize on the explosion in online activity that we'll see in the next few years... and beyond.

Okay, that's all well and good. You have a pretty decent idea of what the company does and how it is different from some of the other companies in the storage market. Now it's time to decide if it is a compelling investment. Well, on January 26, EMC reported 1998 Q4 earnings. Revenues were up 36% versus Q4 1997, and earnings on a diluted basis were up 50%. Net profit margins expanded to 21.5% from 20% last year, too. This is all good stuff. (To learn more about net margins, click into our How to Value Stocks area.)

At the current price($99 1/2 on Feb. 8, 1999), EMC is trading at 67 times trailing earnings. It's not cheap using conventional valuation methods. Then again, amazing companies never are.

What impresses me so much about EMC is that it is the leader in a rapidly growing environment. It has successfully moved into the software side of the storage business. It has also really begun to ramp up its fibre channel business. Fibre channel is currently growing at almost 200% for EMC and will be an increasingly important part of its business. For more on fibre channel, check out EMC's website.

EMC is the leader in enterprise storage. The market for enterprise storage is not going to get smaller. Industry estimates are for enterprise storage to grow to $35 billion over the next 3 years, from $10 billion in 1998. The company's revenues, earnings, and margins are all rising. If past performance is any indication of future results (and with a great business it usually is), then I think EMC will continue to dominate the high-end of the storage market and shareholders will be very happy in a few years. What's not to love about that?

EMC Company Information:
Trades on NYSE under symbol EMC
Web Site: www.emc.com

Company Address:
35 Parkwood Drive
Hopkinton, MA 01748

Other Related Links:
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The EMC Effect? -- Fool on the Hill 1/27/98
Daily Double -- 12/24/98

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