Analysts: EMC Will Face “Harsh” Questioning

Analysts expect data storage giant EMC to face “harsh” questioning at its annual analyst meeting
this week, a marked change from the lovefests of previous years.

Investors will be “demanding answers to issues such as sustainable growth and margins, pricing, competition and near-term demand,” according to a Goldman Sachs
(GS) research note.

Like other hardware manufacturers, the Hopkinton, Mass., company, has seen its revenue and earnings slide as customers cut capital budgets. As a result, EMC’s
stock is hovering around 20, way off a high of 104 in September.

Some issues expected to be addressed at the meetings (to be held Wednesday and Thursday in Boston) include: business pulled forward in the June quarter,
sustainable gross margins, and accuracy of data from the field.

“With EMC bending over backwards to accommodate customers’ reduced IT budgets, customers had little incentive to take shipments early in the quarter, resulting
in an extremely back-end loaded quarter that may have seen 70 percent of revenues come in the third month,” GS said.

An uneven quarter makes it difficult to forecast future results, especially if customers pulled the trigger on purchases that were too good to pass on.

EMC’s price slashing could be a boon going forward however. Previously the firm’s data storage equipment was clearly more expensive than competitors such as IBM . Now, there is little differentiation.

“This new pricing flexibility removes one of the biggest disadvantages that EMC had faces…and will make it an even more formidable competitor in a better demand
environment.”

The pricing could help explain new half-year sector numbers from Gartner Dataquest. The market researcher found that EMC extended its lead in the networked
information storage (NIS), which includes Storage Area Network systems and Network Attached Storage gear.

GS also believes that EMC’s gross margins, which plummeted from 59 percent in Decembers 2000, to 47 percent in June, will stay stabilize in the September
quarter and begin to improve in the December quarter.

Other observers, including analysts at Banc of America Securities don’t expect EMC executives to offer any financial guidance for the current quarter. Earlier, EMC
said the quarter would be difficult, in part because of the summer slowdown, but declined to give numbers.

Shares of EMC were up 0.06 in morning trading to 19.59.

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