EMC's Slow Expansion
Stocks: (EMC)(RSAS)(CHKP)
EMC announced within the last few days that it was buying Isreali content management outfit ProActive Software Solutions and that it would also spend $500 million in China. The investment will be made between now and 2010. The company said it was making the move because the pool of tech workers in China is one that EMC wants to tap, but the cost factor of using workers outside the U.S. is certainly a the heart of the move. EMC is making similar moves in India.
As a digital storage company, EMC's products are at the heart of the growth, or lack thereof, of technology products at big company's. EMC's CFO recently said that the company's quarter that ends in June may not be as good as previous forecasts. This took a stock that was already in bad shape and made matters worse. After trading between $10 and $14 most of the last two years, the stock is now at the low end of that range at $11.25.
The stock may be too low.
From 2003 to 2004, revenue grew 32%. From 2004 to 2005, revenue grew 17% to $9.664 billion. Operating profits also grew impressively each year, and hit $1.48 billion for the entire year 2005.
Wall Street was disturbed that the March 2006 quarter had a topline of $2.551 billion and operating income of $303 million.
Now word comes that EMC is buying RSA Security for $1.8 billion. The company has valuable assets in the secure digital software market and would add significantly to the products EMC could market to large enterprises. The company also had revenue of $310 million last year and operating income of over $35 million. So, EMC would be paying a 4.5 time prices to sales ratio according to YahooFinance!. RSA competitor Check Point tades at nearly eight times sales.
EMC's appetite for reasonably priced acquisitions to build its business may turn out to be the catalyst that drives the company's revenues back to double digit growth. And, if labor costs for the company's software and IT employees drop due to EMC's moves into India and China, the stock may look cheap at $11.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.
EMC announced within the last few days that it was buying Isreali content management outfit ProActive Software Solutions and that it would also spend $500 million in China. The investment will be made between now and 2010. The company said it was making the move because the pool of tech workers in China is one that EMC wants to tap, but the cost factor of using workers outside the U.S. is certainly a the heart of the move. EMC is making similar moves in India.
As a digital storage company, EMC's products are at the heart of the growth, or lack thereof, of technology products at big company's. EMC's CFO recently said that the company's quarter that ends in June may not be as good as previous forecasts. This took a stock that was already in bad shape and made matters worse. After trading between $10 and $14 most of the last two years, the stock is now at the low end of that range at $11.25.
The stock may be too low.
From 2003 to 2004, revenue grew 32%. From 2004 to 2005, revenue grew 17% to $9.664 billion. Operating profits also grew impressively each year, and hit $1.48 billion for the entire year 2005.
Wall Street was disturbed that the March 2006 quarter had a topline of $2.551 billion and operating income of $303 million.
Now word comes that EMC is buying RSA Security for $1.8 billion. The company has valuable assets in the secure digital software market and would add significantly to the products EMC could market to large enterprises. The company also had revenue of $310 million last year and operating income of over $35 million. So, EMC would be paying a 4.5 time prices to sales ratio according to YahooFinance!. RSA competitor Check Point tades at nearly eight times sales.
EMC's appetite for reasonably priced acquisitions to build its business may turn out to be the catalyst that drives the company's revenues back to double digit growth. And, if labor costs for the company's software and IT employees drop due to EMC's moves into India and China, the stock may look cheap at $11.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.
posted by douglas mcintyre at 9:37 AM
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