These days, the technology business ain't for the faint of heart. In the space of a week in December, IBM (IBM) sold its PC business to Lenovo, Oracle (ORCL) gained approval for its takeover of PeopleSoft (PSFT), and Symantec (SYMC) made a winning offer for Veritas (VRTS). Why? It seems that a slow recovery in spending coupled with vicious global competition is helping the strong get stronger while the weak take a powder.
A couple of years ago, data-storage giant EMC (EMC) fell into the latter category, thanks to the bursting of the Internet bubble. But now the company that had the No. 1 stock on the New York Stock Exchange during the 1990s is back.
A lot of the credit goes to CEO Joseph Tucci, who joined EMC after rescuing Wang Global from bankruptcy and selling it to Getronics in 1999. In four years on the job at EMC, he has revived sales and profit growth and restored the company's leadership of the storage industry. Little wonder he's one of BusinessWeek's Best Managers for 2004.
BusinessWeek Correspondent Andrew Park spoke to Tucci on Dec. 15. Here are edited excerpts from their conversation:
Q: How much do you expect spending on info tech and storage to rise in 2005?
A: We're modeling 4% overall IT spending growth. On the storage side, I think it'll be pretty similar to this year's 7% growth.
Q: That sounds pretty similar to 2004. What about trends?
A: You're going to see more than 70% growth in terms of terabytes stored. We're going to absorb a lot of that for our customers.
Q: What about software?
A: We want to grow at least two times the storage market. And we want to grow our software assets considerably faster.
Q: Do you expect a qualitative difference in the spending on software in 2005?
A: There are the same basic trends. Customers don't want to pay for the licenses until they need them. On the maintenance side, they're balking a little bit, so I think maintenance fees on software could come under some pressure.
Q: What will be the impact of their preoccupation with costs?
A: In the software world, most customers feel they have way too many licenses with way too many companies. They all have pressure in their budgets. [So] there's absolutely a flight to quality.
Customers will be looking to do more business with fewer vendors. And in return, they'll get some better pricing. [The software companies] that succeed are going to have a broader portfolio.
Q: Sounds like the software business is ripe for even more consolidation.
A: I couldn't agree more. I think customers feel like they've done a pretty good job of beating up the hardware guys. Some of them even feel a little sorry for us. And I think they think they have some pretty good prices on services. I think now they feel it's software's turn in the barrel.
Q: Speaking of consolidation, what do you think of Symantec's plan to acquire Veritas, one of your key competitors in storage software?
A: There's not a ton of synergies. [But] I'm not going to sit here and knock it. This is going to be a big boys' game. The guys running the bigger companies have seen this act, and they're not going to get disrupted. They're going to move very aggressively and quickly. The fast-moving, well-capitalized companies with execution excellence are going to be the winners in this round.
Q: Will this make Veritas a tougher competitor to EMC?
A: Any merger of this size, they're disruptive. If we continue to operate as good as we've been operating in 2003 and 2004, I think it gives us an opportunity. Out of the big technology product companies, companies like Cisco (CSCO) and Hewlett-Packard (HPQ), we're No. 9 in terms of market capitalization.
And out of the top 20, we have the fastest organic growth. For years, Dell (DELL) had that lead. I think we're executing pretty well now. We've got to just keep the pace up. And [Veritas has] to worry about a lot of other things.