EMC in IBM's Sights?
In the wake of last year's tech cave-in, shares of EMC (EMC ), the world's No. 1 provider of data-storage hardware and software, plunged from 80 in mid-January, 2001, to 10 on Sept. 21. Since then, the stock has rallied to 17--thanks to some analysts who think EMC has hit bottom. But at least one money pro is buying EMC for another reason: Hilary Kramer, senior managing director at Cisneros Group, a private outfit that manages billions, has snapped up shares--because she believes EMC is takeover prey. She expects IBM will ultimately buy EMC, whose market share is under siege, in part because IBM has made a forceful foray into the business.
IBM is engaged in a fierce price battle with EMC to gain market share in the $35 billion storage business, says Kramer. In the third quarter, IBM expanded its storage business by more than 20%, and EMC's revenues shrank by nearly 50%. It wasn't that IBM's storage product, Shark, was superior. Rather, IBM was "gift-wrapping Shark," and was almost giving Shark away by bundling it with server-storage-services deals--and hurting margins, says Kramer. She says IBM will be willing to pay a premium for EMC to dominate a sector that could produce 60% profit margins to a company that provides the full range of data-storage software, hardware, and services. If it buys EMC, IBM will acquire EMC's high-end, industry-trusted products, which would advance IBM's goal of one-stop shopping, says Kramer.
Even without a takeover, EMC is worth 20 a share, based on six times the company's 2003 revenues, says Clinton Vaughan, an analyst at Salomon Smith Barney. EMC and IBM declined comment.
By Gene G. Marcial