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EMC's Murky Outlook

Last Thursday, chipmaker PMC-Sierra's (PMCS) Chief Executive Bob Bailey said "positive trends in our enterprise storage business" helped narrow the company's third-quarter loss.

"We're still bullish on the storage sector, and continue to hold shares of EMC," said Tony Trzcinka, a portfolio manager with Pax World funds. Pax also holds shares of hard-disk-drive maker Seagate (STX) and Network Appliance.

Trzcinka is not alone in his assessment of the storage industry's prospects. EMC shares have risen 77% this year, in part because of the torrid growth of the company's virtualization software subsidiary VMware (VMW), whose stock has more than tripled since its initial public offering in August.

Pax's Trzcinka will keep a close eye on EMC's core storage revenue and profitability to see if a slowdown in tech spending is affecting the company as it phases in new products. This will also show whether EMC has had to discount products in order to keep up sales, says Trzcinka.

Discounting may help EMC gain market share in a weaker economy, says J. Hingorani, an analyst with Standard and Poor's. Because it can bundle storage gear with products from its RSA Security subsidiary, EMC can offer greater discounts across a range of products. That can keep the company in good graces with corporate IT managers who face budget freezes in a slowing economy.

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