What's in store next? Company tying its systems into networks

By Joann Muller, Globe Staff

n 1995, after EMC Corp. topped the Globe 100 list for the second year in a row, president and chief executive Michael C. Ruettgers predicted it wouldn't happen a third time.

It wasn't because he thought the Hopkinton-based computer storage company was running out of gas. He simply realized that the formula on which the annual survey is based tends to favor smaller, high-growth companies. EMC was just getting too big to win again, he reasoned.

And he was right.

Yet despite its bigger size - nearly $3 billion in revenues last year (12th-largest in Massachusetts) - EMC's growth rate is accelerating. Revenues grew 29 percent and earnings per share grew 32 percent last year; EMC predicts confidently that both will grow well more than 30 percent this year.

EMC didn't even show up as a blip on the radar screen in the first two years of the Globe 100, but it came out of nowhere to post the best track record in the survey's history. For five of the last six years, EMC finished in the top five. This year, it ranked fifth.

Ruettgers, who joined the company 10 years ago, attributes EMC's phenomenal success to its substantial technology lead over rivals and its careful attention to customer needs.

''We're in tune with the market,'' said Ruettgers, adding that he is especially pleased EMC has thrived while other computer-related companies have experienced a slowdown.

''There are very few companies in the computer industry with growth rates like this,'' he said.

EMC was founded in 1979 by entrepreneurs Richard J. Egan, who is still chairman, and Roger Marino. As a supplier of add-on memory boards for minicomputers made by such companies as Digital Equipment, IBM, Wang, and Data General, saw revenues grow to $100 million in 10 years.

But quality problems surfaced in the late 1980s - the result of some bad disk drives from a Japanese supplier. This nearly drove EMC out of business. As it scrambled to replace customers' faulty machines, EMC drained its coffers, losing money for five quarters in a row.

The company managed to survive, however, and in 1990, it revised its strategy to focus on providing disk storage systems for IBM's big mainframe computers. The idea was to help companies manage increasing amounts of data so that they could develop new products and accelerate their time to market.

That's when EMC's growth really took off. In just three years, EMC outsold IBM in mainframe storage systems, which, essentially, are giant electronic filing cabinets. It was as if Boston's own Sam Adams beer had outsold the King of Beers, Budweiser.

EMC's flagship Symmetrix storage system is a refrigerator-sized box containing dozens of small disk drives that are linked together, enabling the machine to hold a huge amount of data that can be easily and quickly retrieved. One key feature is ''caching,'' which allows the most-used data to be stored in a short-term staging area, so the computer does not have to make a lengthy trip to retrieve information from remote disks.

After taking more than half of IBM's customers and capturing more than 40 percent of the mainframe storage market in just five years, EMC saw its growth slow in 1995, when rivals finally came out with competing products that undercut EMC's prices.

But by that time, EMC was already shifting directions again.

The company realized that big corporations were relying less on mainframe computers and more on an array of smaller computers to run their businesses.

As these companies began to link their far-flung enterprises through such client-server networks, they were looking for ways to quickly analyze and share information throughout their organizations.

EMC decided that rather than tie its hardware storage systems to one particular type of computer, it would develop software that would enable its storage systems to work equally with mainframes and other types of computers, including Unix- and Windows NT-based systems.

Last year, EMC sold $180 million worth of software, up from $75 million in 1996 and $25 million the year before. This year, its goal is to sell $400 million worth of software, which would put EMC among the world's 25 largest software companies.

''At this growth rate, we should have $1 billion in software revenue in the next couple of years,'' said Ruettgers.

But EMC's success stems as much from its marketing prowess as from its cutting-edge technology.

The company managed to turn computer storage into a sexy topic by convincing large corporations such as airlines, banks, retailers, and car rental agencies that having the right electronic filing cabinet is more important than having the right computer.

Rather than using a storage system as just a backroom depository for data, EMC's customers could use their collective knowledge to gain advantages over competitors.

In doing so, EMC essentially ''rewrote the rules'' on how companies buy storage, said John Webster, director of information technology consulting for the Yankee Group.

Not surprisingly, EMC's rivals are hot on its heels. Hitachi, Sun Microsystems, and IBM all have announced "open storage'' systems like EMC's. But Ruettgers doesn't see another price war coming that would hurt EMC again.

''If we were only providing hardware, you'd run that risk, but there's so much value in the software we provide, the customer can't do many of these things without our software. If we hadn't transformed ourselves into a software company, we would be more vulnerable on price.''