EMC is among the top IT vendors, a fact that is reflected in its market value of $39.61bn (as on 28th November, 2007). It also holds 86% of VMware’s stock. The stock market values VMware at $31.89bn, believe it or not, so EMC’s share of that amounts to a cool $27.42bn. And that, in turn means that the rest of EMC; its storage business and its information management business and its security business and its system management business, and a lot more besides, is valued by the stock market at a mere $12.19bn.

And that makes no sense at all.

EMC will do more than $12.19bn in revenues this year (the estimate is $12.9bn) and it’s been growing at about 15%. So, EMC exhibits a strange kind of paradox. One of two things are true; either EMC is undervalued or VMware is overvalued - and both may be true.

EMC’s Business

EMC’s storage business is healthy and the storage market is continuing to grow dramatically - as usual. At the recent EMC analyst event, CEO Joe Tucci, put up a graph which showed the storage market averaging about 60% growth over the last ten years. At the same time, of course, the cost of storage is falling, but it nets out positively for EMC. At a compound growth rate of 60%, the world data will amount to one zetabyte by 2010.

What’s a zetabyte?

Well 1000 terabytes are a petabyte and 1000 petabytes are an exabyte and, finally, a zetabyte is 1000 exabytes. A terabyte is the size of the disk drive you’ll be buying next year to store your videos on. For all I know, the zetabyte was named for Catherine Zeta-Jones to commemorate her excellent performance in the musical Chicago. And what comes after a zetabyte? I’ve no idea, but my suggestion is that it should be called a “scuzzibyte”.

Back to EMC: It’s not just the storage business that’s doing well - EMC is now deeply into the virtualization of storage, courtesy of VMWare, and, by the way, they’re about to enter the consumer market with multi-terabyte devices. EMC is doing well on multiple fronts.

You may remember that EMC bought RSA, the “encryption company”. Actually RSA was a little more than that, because it did and does Identity Management rather well. EMC has managed to widen RSA’s horizons and grow its revenues. It’s now focussed on the whole area of data security (RSA’s view of data security will be the subject of a later posting on this blog - it clarifies the problem very well).

You will remember that EMC bought Documentum and has since grown it into an information management business that touches on enterprise content management, collaboration, information policy and Digital Rights Management.

You may also have noticed that EMC recently bought Mozy and thus is getting itself into the SaaS business through on-line back-up.

EMC and Acquisitions

In general EMC appears to be good at making acquisitions work. Their handling of the VMware acquisition was beyond good. VMware operates as a completely separate company - by mutual agreement between executive boards. VMware provides no technical advantage to EMC over and above other technology partners it has (such as IBM, HP, etc.) EMC managed to acquire VMware without damaging its business at all. Indeed it managed the acquisition so well that it was able to take VMware to market in an IPO and subsequently watch its value rocket to the point where it has created a strange paradox of value.