A leading provider of information infrastructure solutions, EMC Corp. (EMC) maintained its leadership position in the external disk storage systems market for the fourth quarter, ended December 31, 2011.
According to recent data from research group IDC, EMC’s market share stood at 29.4% in the fourth quarter (up 340 bps), compared with its closest rival International Business Machines’ (IBM) 15.2% (down 120 bps). Hewlett Packard Co. (HPQ) and NetApp Inc. (NTAP) were jointly placed in the third position, followed by Hitachi Data Systems at number 4.
Overall, external storage system revenue increased 7.7% year over year to $6.6 billion in the fourth quarter. EMC earned revenues of $1.93 billion in the quarter, up 22.4% year over year, marking the highest growth among the top five vendors.
In fiscal 2011, external storage system revenue increased 10.6% year over year to $23.49 billion. EMC maintained its #1 position with revenue of $6.69 billion (up 23.6% year over year) and a market share of 28.5% (up 350 bps on a year-over-year basis). IBM came second, with 13.5% market share in 2011. According to IDC, this is the 15th consecutive year that EMC has led the external disk storage systems market in terms of revenue.
Total disk storage systems revenues were up 3.5% year over year to $8.55 billion in the fourth quarter. EMC again led the pack with 22.6% market share and its revenues spiked 22.4% year over year to $1.93 billion. HP was #2 with 17.7% market share followed by IBM with 16.4% market share in the quarter. In the quarter, the top five vendors shipped approximately 6,279 petabytes, a strong increase of 22.4% from the year-ago quarter.
EMC maintained its dominance in the total disk storage systems, grabbing 28.5% market share, an increase 300 bps year over year in 2011. IBM was #2 with 13.5% of market share, while NetApp was placed in the third position with 12.4% market share. The top three were followed by HP at the fourth spot and Hitachi at #5.
Despite maintaining their respective positions, both IBM and HP’s market shares declined 30 bps each in full year 2011. We believe that both the companies lost market share to EMC and NetApp. NetApp’s market share increased 130 bps, but the company registered the highest growth, with revenues increasing 23.7% year over year, slightly better than EMC in 2011.
According to market research firm Gartner, IT spending over the 2010-2015 period will be highest on computing hardware, of which data storage forms a major part. As enterprises continue to adopt cloud computing technologies, data center hardware spending is also expected to increase going forward.
According to Gartner, worldwide data center hardware spending is expected to reach $106.4 billion by the end of calendar year 2012. Data center hardware spending includes servers, storage and enterprise data center networking equipment. Data center hardware spending is further forecasted to surpass $126.2 billion by 2015.
We believe that EMC is well positioned to benefit from this incremental spending going forward. Higher spending on high-end products (average selling price $250,000 and above) will also boost EMC’s market share going forward. We believe that EMC’s vast product portfolio, which has products suitable for any kind of budget, will boost its market share going forward.
We also believe that the increasing adoption of cloud computing technology will significantly drive the demand for EMC’s virtual infrastructure products, which in turn is expected to be accretive to top-line growth going forward. Further, EMC’s leading position in the emerging economies of the Asia-Pacific and Africa will boost its profitability, as higher revenues from these markets will offset a sluggish growth in the Americas and Western Europe going forward.
However, we believe that supply chain problems, particularly the unavailability of hard disks due to the devastating floods in Thailand, will remain an overhang on EMC in the near term. Moreover, increasing competition from NetApp and a sluggish IT spending outlook for the next two years will keep the stock range bound in our view.
Thus, we remain Neutral over the long term (6-12 months). Currently, EMC has a Zacks #3 Rank, which implies a Hold rating in the near term.
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