Feb. 3, 2003, 5:46 p.m. EST

EMC banking on new storage device

Symmetrix DMX line key to regaining high-end initiative

By Rex Crum, CBS.MarketWatch.com

HOPKINTON, Mass. (CBS.MW) -- Joe Tucci, chief executive of storage giant EMC, says he knows what's at stake with the company's new line of Symmetrix storage systems.

"We basically threw out everything and started over," Tucci said. "This is a brand new storage architecture. We spent a lot of money of it."

That might be an understatement.

EMC has reportedly invested $1 billion in its new Symmetrix DMX line, which the company is counting on to solidify its position in the high-end storage market. Against competitors such as IBM (NYS:IBM) , Hitachi Data Systems, a unit of Hitachi , Hewlett-Packard (NYS:HPQ) , and Network Appliance (NAS:NTAP) , EMC is attempting to woo customers such in the financial services and health care sectors.

EMC unveiled the Symmetrix line early Monday. It was the first major upgrade to Symmetrix since late 2001, the last fully redesigned model since April 2000.

Investors didn't rush into EMC shares following Symmetrix's DMX release. EMC's stock fell 4 cents to close at $7.55 on volume of 15.3 million shares.

A necessary upgrade

Analysts say an upgrade to Symmetrix was long overdue. Demand for EMC's high-end devices has fallen for several years now because of an overcapacity of storage, and the slumping economy, which has sliced information technology budgets. Increased competition has also eaten into EMC's market share.

"The question is how much Symm will be sold," said Merrill Lynch analyst Steve Milunovich.

EMC is offering three models of the Symmetrix DMX line: the Symmetrix DMX800, DMX1000, DMX2000, each of which provide greater amounts of storage capacity. The devices will cost between $400,000 and $2.5 million.

In unveiling the new line, EMC was quick to say it has already lined up breakfast-cereal king General Mills (NYS:GIS) as a customer. General Mills has bought 150 terabytes -- or 150 trillion bits of information -- worth of Symmetrix DMX2000 storage systems.

The push back into high-end storage comes after recent inroads by EMC into the mid-level storage market with its Clariion system. The company also has an arrangement with Dell Computer (NYS:DELL) that allows Dell to make and sell storage devices designed by EMC.

Some analysts have expressed concern that Symmetrix's technology is so similar to Clariion's that sales of the high-end device could cannibalize EMC's strength in the mid-tier market.

Tucci said such concerns were unfounded, adding that there's always going to be a bit of product similarity. "Customers know when they want to use a mid-tier system," Tucci said. "Trying to get things so perfect so that there's no overlap serves only to frustrate our engineers."

For the most part, analysts said EMC was making the right move in re-launching the Symmetrix line.

"In the context of new systems, this is extremely important," said Roger Cox, storage analyst with research firm Gartner. "From a pure performance point of view, Symmetrix needed to be refurbished to provide better performance and network scalability."

Salomon Smith Barney analyst H. Clinton Vaughn said EMC now appears able to "satisfy every level of a customer's storage needs without the slightest gap." Vaughn added that he expects EMC to gain market share in 2003.

Tucci said he expects 15 percent of EMC's revenue for its current, first-quarter to come from Symmetrix sales, even though the new line was launched one-third of the way through the quarter. EMC estimates that excluding charges it will earn, at best, 1 cent a share on revenue of $1.35 billion to $1.4 billion.

For its recently completed fourth quarter, EMC posted a net loss of $63.9 million, or three cents a share, on sales of $1.49 billion.

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