Competition Stiffens, EMC Lays Off 4%

EMC Corp. will lay off around 1,100 people--4% of its workforce



EMC Corp. will lay off around 1,100 people--4% of its workforce--during the next several weeks. It wasn't supposed to happen to EMC, a Wall Street storage darling that was expected to be a $12 billion company this year.

EMC says it will take a penny-per-share charge for the second quarter to cover staff cuts and redeployments. While some people are laid off, others will be moved into quota-oriented positions as a way to reduce costs. EMC will even hire some quota-carrying sales reps and engineers while letting other people go. The pressure will be on the ones left behind to chase down what management says is a $50 billion market. That market's gotten nothing but tougher in the last 18 months.

EMC was just about out of money back in the late '80s as a memory maker until it saw an opportunity in high-end storage, dominated by IBM. It took that market away from IBM and then became the bet-your-business vendor that could store and manage data from all major servers. But IBM, along with Compaq and Hitachi Data Systems, are mixing it up pretty well with EMC. The company has been forced to give on its profit margin to win sales.

Financial analyst Shebly Seyrafi at A.G. Edwards thinks four industry factors are catching up to EMC:

  • Computing orders are still shrinking, according to government numbers
  • There's excess inventory out there, including "garage sales from dot-com companies," Seyrafi says
  • IT spending was shut down earlier this year, forcing buyers to suffice with the capacity they bought last year

Hitachi is becoming a force to reckon with. "EMC has to be careful not to fall behind this sleeping giant that's awake now," Seyrafi says.

But there's reason to be hopeful, too. Says Seyrafi, "It's only so long before the IT departments have to throw in the towel by mid-2002, because capacity [needs] will increase for E-mail, optical bandwidth, and apps like CRM."

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