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Hewlett-Packard, EMC Trade Jabs

The companies parted earlier this year with little fuss, but this week, things have gotten ugly.

Breaking up can be hard to do, even when the parting is amicable. That's how it was in May when



cut the cord with Wall Street darling




On Wednesday, however, the dishes started flying, with Palo Alto, Calif.-based H-P asserting forcefully that Hopkinton, Mass.-based EMC isn't as powerful as it'd like the neighbors (each others' customers and Wall Street, that is) to believe.

Silicon Valley icon H-P said in May it would no longer resell EMC's enterprise storage devices, refrigerator-sized computers that store massive amounts of information for large corporations. That was no small loss for EMC, whose stock price is up more than fourfold since the beginning of 1998 (remember: this is a


company we're talking about, not an Internet stock). In the first quarter of 1999, H-P accounted for 13% of EMC's $1.1 billion in revenue.

EMC put on a brave face, promised to win over H-P's customers all by itself and then claimed to replace the entire $130 million of revenue in the second quarter it had been counting on H-P to supply. More, EMC boasted that it wouldn't even miss H-P. "We saw their influence waning," sniffs an EMC spokesman.

Investors love EMC and have awarded it a


multiple. The stock currently is trading at 57 times this year's estimated earnings (with forecasted annual EPS growth of 41%) compared with 71 times for telecommunications gear-maker (see how quickly this column updates cliche descriptions?) Cisco


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, whose EPS growth rate is about 29%.

But H-P spooked some investors Wednesday by saying it is doing "nine-figure" business in its enterprise storage business (that's more than $100 million, for those whose fingers are glued to the keyboard) and selling hundreds of units. The comments came in a meeting at H-P hosted by analysts from

Banc of America Securities

. The result was to call into doubt EMC's unshakeable position.

"The fact that H-P was willing to put some meat behind its assertions gives them credibility," says analyst Jonathan Ross, an analyst with

ABN Amro

in San Francisco, who also attended the meeting. Ross rates H-P a "hold" and EMC an "outperform." He's unaware of any banking relationship between his firm and the two he covers, which is a pretty good indication there isn't any.

As might be expected of a company as aggressively promotional as EMC, the company heard the buzz from California and reacted loudly.

"None of this matches anything even close to what we're hearing in the field," says an EMC spokesman, who adds that "we're not aware of one customer loss." EMC speculates that H-P has won business in non-U.S. markets where EMC isn't yet strong. It also believes H-P is discounting its products (which actually are



boxes with an H-P label) heavily in an effort to win market share.

All of this is far more relevant to EMC than it is to H-P, for whom $100 million is a rounding error. EMC's stock fell 2 7/8, or 5%, Thursday to 60 in nearly average trading volume. Should H-P -- whose stock dropped about 2% -- convince investors it's gaining on EMC, the smaller company's rich multiple could suffer.

Careful, though. EMC has frustrated short-sellers before. Says one publicity-shy fund manager who attended the H-P meeting: "No one's going to short any of these monsters (like EMC or Cisco) until they cannot only smell blood in the water, but see it as well."

Human resources

Imagine you join one of the hottest Silicon Valley startups ever just five months after it's gone public to be vice president of investor relations. Pretty sweet job, right?

Apparently not sweet enough for Tom Nicoletti, the former IR chief for



. Nicoletti, whose job it was to deal with institutional investors and analysts as eBay's stock price wilted from 234 in April to as little as 79 at the beginning of the month, bolted last week for, what else, another Silicon Valley startup.

"I wanted to share an organizational change that has taken place since the analyst day," eBay CFO Gary Bengier wrote to investors who gathered at eBay's headquarters on Aug. 9 -- a day that in retrospect marked something of a recent bottom for eBay's stock, which closed Thursday at 128 7/16. Nicoletti, Bengier wrote, had left to join


, a low-profile startup, as CFO.

The odd thing is that Nicoletti wasn't necessarily far under water in his stock options, if at all. He joined eBay in mid-February, when the stock hovered between 70 and 80 on a split-adjusted basis. So that's around where Nicoletti's options -- the right to buy shares at a fixed price in the future -- would have been priced.

Nicoletti was vacationing with his family Thursday, according to a pal still at eBay, and couldn't be reached for comment.

Quote of the week



deal is just opening everyone's eyes as to the value proposition from this communications infrastructure build-out," says Mark Zanoli, who heads

Hambrecht & Quist's

investment banking for the communications industry. Zanoli, who wasn't involved in the deal, was pounding the pavement in Silicon Valley among private companies with suddenly big eyes as to their potential valuations. He notes that the rule of thumb for top-drawer engineering-oriented start-ups used to be that an acquirer would pay $5 million per engineer. Cisco is paying about $26 million per Cerent employee, not all of whom, presumably, are engineers.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at