EMC, Hitachi in storage turf tiff

Summary:Let the squabble begin! EMC says its high-end storage machines have replaced Hitachi Data Systems' at Qwest Communications. HDS says it hasn't.

In a squabble showing just how painful the storage market has become, EMC claims to have stolen away a prominent customer from rival Hitachi Data Systems, but HDS disputes the claim.

The customer in question is telecommunications company Qwest Communications, which sells high-speed fiber-optic lines and hosts Web sites at several "CyberCenters" populated with servers and high-end storage systems. In the past, the company used first Hewlett-Packard storage systems based on the HDS design, then later both HDS and EMC equipment.

EMC and HDS offer different interpretations of exactly what's happening at Qwest. EMC says it has replaced HDS high-end systems; HDS says its systems are still on the floor and that EMC merely traded its hardware for Qwest's networking services.

Qwest declined to comment on what equipment it actually uses, other than to point to a news release from May that said the company uses both EMC and HDS systems. "We do not have exclusive providers in our business," said spokeswoman Claire Maledon.

EMC and HDS specialize in high-end storage systems that can maintain connections with many servers simultaneously, handling large numbers of transactions as information is written to and read from databases. The company once enjoyed plump profit margins, but the slumping economy has forced it to cut prices to keep up with competition from IBM's Shark product as well as HP and Sun Microsystems, which sell HDS' 9900 Lightning system. Compaq Computer, too, now has a competing product.

As part of a campaign to undermine HDS, EMC's public relations staff said this week that Qwest recently purchased EMC hardware and software, "in the process swapping out HDS storage." Among the systems Qwest dumped were HDS' top-end 9900 Lightning storage systems, said EMC spokesman Greg Eden.

Not so, said Scott Genereux, vice president of sales at HDS.

EMC's win at Qwest "was a complete barter" in which EMC CEO Joe Tucci "said we will buy X million dollars of bandwidth if you buy X million dollars of storage," Genereux said. "It was a last-minute...deal."

Moreover, Genereux said, "We didn't deinstall anything." The only products that were removed from Qwest were elderly and unused older 5800 models sitting in a warehouse and other older 7700E models originally installed through the Hewlett-Packard deal that began in September 1999.

Eden denied there was a barter deal. "We are a customer of Qwest's, but this is not related," he said.

The squabbling illustrates just how rough the storage market has become, with EMC, HDS, IBM and now Compaq dueling for the same customers for high-end storage systems. EMC decided to sacrifice its once-plump profit margins in an effort to maintain market share, and the result has been bloodletting at the Hopkinton, Mass., company.

EMC is laying off 4,000 employees on top of the 1,100 it laid off earlier this year. HDS, meanwhile, laid off 300 employees, about 10 percent of its total staff, said spokeswoman Jodi Reinman.

Genereux denied a report that HDS is ceasing direct sales in favor of relying on partners such as Sun and HP.

A year ago, Executive Chairman and then-Chief Executive Mike Ruettgers said in an interview that the company wasn't feeling pressure on its profit margins. Now that has changed completely, with the 57.7 percent gross margin in the company's third quarter of 2000 plunging to 30 percent in 2001.

Shebly Seyrafi, an analyst with A.G. Edwards, said IBM is willing to cut costs more deeply than competitors, in part because it can afford to subsidize storage sales through its overall mainframe business.

"We believe that HDS is less willing to decimate its margin structure than its competition," Seyrafi said.

Topics: Hardware

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