Word that EMC Corp. may be headed to a merger or breakup or spinoffs gives Massachusetts 9,000 reasons to worry – as in, the 9,000 jobs this Interstate 495 technology giant sustains in Massachusetts.
But experts said Monday as EMC keeps showing up in the business headlines, it’s not so much that EMC is struggling as that it’s at a crossroads, with 13-year CEO Joseph Tucci stepping down next year and newer business units growing much faster than its giant data storage system sales.
As hedge fund Elliot Management, owners of over $1 billion in EMC stock, push the company to take "value-maximizing" steps for shareholders, reports have swirled in recent days that EMC and Hewlett-Packard got a ways down the road towards a $130 billion combination before backing off – and that Cisco Systems, Dell, Oracle and others may be interested in some or all of EMC.
"It's not like EMC is in a huge amount of trouble right now, but that being said, they are focused as a storage company, and that industry is facing some headwinds" as companies tighten up on information technology spending and demand cheaper and cheaper solutions, said Brandon Butler, a senior writer with Network World who closely follows EMC.
Besides its heritage business selling giant data storage units and systems, EMC also owns 80 percent of the "virtualization software" leader VMWare, which enables companies and organizations to run rooms full of multiple vendors' computers as one system. That stake was worth $33 billion at the market’s close Monday, or well over half of EMC’s total $60 billion market cap. Also parts of the EMC business are RSA Data Security and the "cloud-based big data" startup company Pivotal. The software companies are managed as a so-called federation with EMC, meaning buyers aren’t locked into running them on EMC-made hardware but can run them on multiple other vendors' computers and servers.
EMC stock has done fairly well over the last five years, rising about 78 percent, in line with the overall gains of the Dow Jones Industrial Average, but market analysts like Matthew Morse of Boston money managers Crestwood Advisors said there’s a widespread sense the share price undervalues the total package EMC interests and operations.
Rather than suggesting problems with EMC, Morse said, the current deal talk "is more a function of the market being opportunistic, whether it's other companies like HP and Dell saying here's a great business trading at a cheap valuation in a market where those are harder to find ... or investors saying this could actually be a lot more valuable if they were to split up the parts say and spin out VMWare."
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"There’s the core EMC business which is still doing well, but it’s growing at a slower pace" than newer units that shareholders are willing to pay significantly more per dollar of earnings than EMC, he added.
Any combination of EMC’s hardware operations with another hardware manufacturer like a Cisco or Dell or HP could lead to fears of Massachusetts-based jobs associated with EMC data storage devices being cut or shifted to Silicon Valley. But at the same time, the level of interest in the company testifies to Tucci’s success in developing growing, profitable, and now highly coveted software-based businesses that are likely to drive a next generation of job growth.
"EMC is still doing fine right now," Butler said. "They still have a lot of revenue coming in. But I think every company is looking around at how they're going to face these new challenges in the IT world moving forward, and so I think EMC is really exploring their options."
With videographer Daniel J. Ferrigan and supervising field producer Mike Bellwin
