A Trailblazer in the Information Technology Industry
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. I would like to focus on a trailblazer in the information technology industry, EMC Corp. (NYSE: EMC).
- Accelerated Revenue Growth: In 2006, EMC reported revenue of $11.2 billion; in 2011 the company announced revenue of $20.0 billion, representing year over year annual growth of 12.3%, this trend is widely anticipated to sustain into the future, with projections placing 2016 revenue at $30.2 billion. This growth has been fueled by a combination of an increase in the total storage market and the growth of virtualization software from EMC's holding VMware.
- Institutional Vote of Confidence: 82% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future.
- Double Digit Margins: Currently, EMC holds a net profit margin of 12.3%, representing a strong and profitable company; these margins are a result of EMC's pricing power and premium offerings in its industry.
- Reasonable Valuation: At the moment the company possesses a price to earnings ratio of 21, a price to book ratio of 2.77, and a price to sales ratio of 2.7, all of which point to a company that carries a reasonable valuation, historically speaking. The company is trading at a 10-year discount.
- Intellectual Property: In 2010, EMC acquired a portfolio of patents from Novell, further adding to its vast portfolio of intellectual property, which is extremely valuable.
- Established & Diversified Nature: EMC is valued at $53.97 billion and employs 53,600. With such an established and diversified nature comes a level of certainty and predictability.
- Cash & Equivalents: EMC currently possesses $4.16 billion worth of cash or cash equivalents on its balance sheet, a major upside to the business.
- Lack of Dividend: EMC has never paid out a dividend in its stock’s history, and has not expressed any plans of doing so in to near future, a major downside to the stock.
- Debt: At the moment EMC possesses $1.71 billion of debt on their balance sheets, a major downside to the business.
- Expanding Operating Expenses: Operating expenses will grow as the overall business grows. However, over the past years, operating expenses have outgrown revenue, an ominous sign.
- Growth in IT Industry: Major businesses are more and more relying on information technology services offered by EMC and others to securely store their data, and the growth in this industry is estimated to be explosive in the coming years, greatly benefiting EMC.
- Acquisitions: In May 2012, EMC acquired Syncplicity, and further acquisitions are very likely and should fuel future growth.
- Research & Development: Between 2003 to 2010, EMC spent $10.5 billion on research and development, and poured $2.4 billion into R&D in 2011, in hopes of innovations, especially in the cloud industry, to fuel growth into the future.
- Capturing Market Share of Storage Industry: The storage industry is extremely competitive, and currently the company possesses about a 32% share of the industry. Any gain in market share would significantly boost the company’s revenue figures.
- Competition: The information technology industry is an extremely competitive one, and this fierce competition to offer the best product for the least amount of money can lead to margin compression.
- Stagnant Economic Landscape: In an economic landscape riddled with such uncertainty and stagnation, companies are less willing to pour money into reinvesting in their business, hurting EMC’s profits.
- Storage Hardware Pricing: The cost EMC is able to charge per GB of storage is dropping rapidly because of newer technologies, making EMC have to store more and more GBs every year.
Major publicly traded competitors of EMC include NetApp (NASDAQ: NTAP), International Business Machines (NYSE: IBM), Rackspace Hosting (NYSE: RAX), and SanDisk (NASDAQ: SNDK). NetApp is also an information technology company, competes with EMC, is valued at $12.07 billion, however pays out no dividend. IBM also offers storage services, is valued at $217.4 billion, and pays out a dividend yielding 1.77%. Rackspace offers cloud storage services, is valued at $9.96 billion, however pays no dividend. SanDisk offers storage hardware, is valued at $10.68 billion, however pays out no dividend.
The Foolish Bottom Line:
EMC possesses a tremendous presence in the rapidly growing information technology industry. The company possesses accelerated revenue growth, comfortable margins, and a large pile of cash sitting on their balance sheets. The only major downfall of the company is the lack of a dividend, especially in this volatile economic landscape. All in all, EMC is a tremendous growth play on the monumental opportunity presented in the IT industry.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC and International Business Machines. Motley Fool newsletter services recommend International Business Machines and Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!