How Valuable Is EMC’s Information Storage Business?
EMC (NYSE:EMC) has witnessed a slowdown in its core information storage business over the last couple of years – a trend consistent across most large storage vendors, including NetApp (NASDAQ:NTAP), IBM (NYSE:IBM), Hitachi Data Systems and HP Enterprise (NYSE:HPE). As a result, EMC’s Information Storage division has become the second most valuable division for the company after VMware (NYSE:VMW). Information Storage includes product sales for storage systems, related software product sales and post-sale services and hardware maintenance. Allied storage products and services including information security product suites and content management software are included in other divisions.
EMC Information Storage contributes 33% to EMC’s total value even though it generated over two-thirds of EMC’s net revenue in 2015. Moreover, its EBITDA contribution was also over 50% in the same period. However, as you can see in the table below, Information Storage’s revenue and EBITDA contribution have fallen over the last five years, and the trend is likely to continue.
The division’s forecast revenue growth – a CAGR of 2.1% – is slower than the overall company’s projected growth of roughly 3.5% in the next five years. Moreover, the EBITDA of the low-margin product business is expected to decline while the company-wide adjusted EBITDA is likely to grow over the coming years.
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Slow growth for EMC’s core information storage business is expected due to weakness in its hardware business. Storage hardware revenue could decline slightly over the next few years even as the overall industry grows at a modest pace. EMC and other large storage systems sellers are increasingly facing competition from smaller vendors and flash-storage startups. Over the last six to eight quarters, customer preference has been shifting to low-cost original design manufacturer (ODM) storage boxes, which is cutting into addressable market for large vendors. [1] As a result, most established large vendors are only left with enterprise customers, which have limited scope of growth in demand. Newer IT and tech startups are opting for “white-box” storage systems. [2]
Have more questions about EMC? See link below:
- How Valuable Is VMware To EMC’s Business?
- ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence
- What’s EMC’s Fundamental Value Based On Expected 2016 Results?
- What Will EMC’s Revenue And EBITDA Look Like In 5 Years?
- How Has EMC’s Revenue & EBITDA Composition Changed Over The Last Five Years?
- What’s EMC’s Revenue & Earnings Breakdown By Segment?
- What Is EMC’s Presence In The Storage Systems Market?
- EMC Earnings: Weakness In Hardware Remains, Non-Core Businesses Drive Growth
Notes:
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More Trefis Research
- The Rise Of White-Box Storage, Network Computing, August 2014 [↩]
- Gartner Says Data Center Infrastructure ODMs Are a Key Threat to Data Center OEMs’ Direct Business, Gartner Press Release, September 2014 [↩]