EMC's DMX a Slow Starter?

While it's early in the game, industry watchers say it appears EMC Corp. (NYSE: EMC) is seeing slow initial customer pickup of its Symmetrix DMX.

EMC launched the DMX, the next generation of its high-end storage system, on Feb. 3. The new system features a new non-blocking I/O architecture, dubbed the Direct Matrix Architecture, that the company says dramatically increases its internal bandwidth -- and, according to EMC, flat-out beats the performance of its main rival, Hitachi Data Systems (HDS). The DMX is also available in three models, giving customers more choice; and EMC asserts that it has brought its pricing in line with the rest of the industry (see EMC Soups Up Symm and EMC vs HDS: Bandwidth Brawl).

In sum, the Symmetrix DMX was designed to get EMC back in the high-end market after getting its clock cleaned by HDS in the last year or so. EMC's goal is for the DMX family to account for 50 percent of its Symmetrix sales in the first quarter.

So how's it doing? EMC wouldn't comment on sales so far. But the early line on the DMX -- and note that, just three weeks after its launch, this is very early -- is that sales may not be ramping as steeply as EMC had been hoping.

Goldman Sachs & Co. analyst Laura Conigliaro, in a research note this morning, says that EMC's first quarter of 2003 seems to be tracking as expected but that business slowed in mid-January and into February, following typical seasonal patterns that "were somewhat exacerbated by customer anticipation of the DMX announcement." This indicates that the first quarter will be even more back-end loaded than usual, she says. "EMC will need a strong finish to beat our 1Q revenue estimate of $1.4 billion."Moreover, she says, an unexpected uptick in Symmetrix 5 sales in the fourth quarter of 2002 "may have cannibalized some potential Q1 DMX sales." Goldman Sachs says Symm 5 sales were up 20 percent sequentially in the December quarter, with sales of the product in Europe particularly strong. "This raises questions about the steepness of the early DMX ramp and what level of growth we might expect from high-end storage going forward," Conigliaro writes.

Still, notes Conigliaro, "EMC is now far better positioned to gain market share and have those share gains translate into profits than it was in 2002."

Meanwhile, Ron Lovell, storage practice leader at IT consulting firm Greenwich Technology Partners (GTP), says EMC shops are doing no more than kicking the tires on the DMX while non-EMC shops are not considering it at all. GTP's customers include several large financial firms, as well as Fortune 500 manufacturing and healthcare concerns.

"Our clients who have Symmetrix now are really feeling pressured about having to lay out a significant amount of cash for a DMX solution... They're uncomfortable about the price points," he says. "People are spending tactically because that's all they really can do... It's still a circle-the-wagons mentality."

Another strike against the DMX is that it's the first iteration of a largely rearchitected system, Lovell says. "It's something new, and people are always very concerned about that." EMC, for its part, says it has minimized the pain associated with moving to a new architecture by maintaining software compatibility with the previous generation of Symmetrix.Tony Prigmore, senior analyst at Enterprise Storage Group Inc., says the jury is still out on how well the DMX will sell. But he says there are two different kinds of stories about customer acceptance of the system. "We've heard the confident side of the story that says EMC is moving this nicely," he says. "The other side is that they're having trouble charging a premium for the performance series... Hitachi is holding its own in that side of the argument."

The DMX1000-P and 2000-P are the "ultra-performance configurations," which use twice as many back-end disk directors and disk channels, and half as many drives per channel, as the baseline DMX models. EMC is charging between 25 percent and 40 percent over competing systems for the P-series, Prigmore says.

"We have to hear from performance-oriented clients as to whether they find the DMX lives up to EMC's claims," he says, adding, "It's crazy to think there are any meaningful answers this early on."

Others have a similar impression that the DMX hasn't taken off yet. "It's pretty early, but from what I've been hearing it's been kind of slow," says Kevin Hunt, an analyst with Thomas Weisel Partners.

Part of the reason is tight IT spending, but Hunt also notes that for high-end applications, Hitachi still has an edge over EMC in many users' minds. "EMC ballyhooed the DMX as having great performance, but it's tough to say until customers bear that out."On the other hand, EMC isn't betting the farm on the highest-end niche: The company has said it expects around 80 percent of DMX sales to be the standard 800, 1000, and 2000 models, not the P-series. "They said their initial high-end products would not be the larger sellers," says IDC analyst Robert Gray. "The positive is they have an architecture with headroom." And, he points out, there's a loyal cadre of Symmetrix customers that build product upgrades into their budgets.

But, Gray adds, "The question -- and it's still an open question -- is: Is it going to reestablish some positive momentum for them?"

Todd Spangler, US Editor, Byte and Switch