It's good to be EMC
The results prove that EMC has done better than effect a complete turnaround. It has become one of the dominant vendors of storage hardware and software, on par with heavies such as Hewlett-Packard
There's no question that EMC's strategic acquisitions have helped considerably. But it's becoming increasingly clear that acquisitions are only part of the growth story. This quarter, for example, EMC once again teamed with longtime partner Dell
Of course, there are also some big problems with EMC. For one, it trades for more than 42 times trailing earnings, well above the market's multiple of roughly 23. That's pricey.
Ask yourself: Do you think EMC can grow its income by more than 40% annually over the next three years? The firm would have to nearly triple its projected 2004 earnings of $825 million to meet that goal, and that would likely require selling more than $22 billion in hardware and software. If you're suddenly thinking that's unlikely, you're probably right. After all, the long-term growth rate for the storage hardware market is projected to be 7%. (Software will be higher, but it's a smaller market.)
And then there's share dilution. EMC is one of the worst offenders when it comes to stock options. Go back to that net income number. Although total income grew by 136%, diluted earnings per share only doubled, to $0.08 from $0.04. Why? Because EMC's year-over-year share count grew by almost 11%. Ouch.
I admit it: I really want to invest in EMC. It's a great, growing business. But how can I plunk down money for shares when management has a history of taking profits from existing owners? Answer: I can't.
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