Is EMC ( EMC) getting a bad rap on Wall Street? A flurry of negative comments implying that a new wrinkle in an old IBM ( IBM) technology called "virtualization" could eat into EMC's revenue is off-base, say analysts who follow the complexities of enterprise data-storage technology. "There's nothing wrong with IBM's technology, but it will not cost EMC any substantive revenue," said Steve Duplessie, senior analyst with the Milford, Mass.-based Enterprise Storage Group. "If that's why Wall Street is beating up the stock, they're stupid." The issue surfaced Thursday when EMC's hard-pressed stock, which has traded as high as $15.64 a share this year, lost another 5% to close at $11.19. The stock has now shed nearly 25% of its value in the last three months. Goldman Sachs analyst Laura Conigliaro blamed the most recent drop on "a series of articles in the industry press discussing IBM's ability to virtualize storage across other vendors' hardware, with particular emphasis on EMC. Our sense is that investors may be misunderstanding the realities of this technology, which is extremely immature and nowhere near an adoption phase." (Goldman Sachs has a banking relationship with EMC.) Also weighing in was Schwab Soundview analyst Omar Al-Midani: "Investors fear this new technology can commoditize EMC's hardware platform," Al-Midani wrote. "We believe this is yet another headline which is being misinterpreted, causing the bears to overreact." (Soundview does not have a banking relationship with EMC.) Simply put, IBM has developed a way to make formerly incompatible clusters of hard disks in enterprise-storage systems work together.
Virtualization has its roots in mainframe technology, but last year Big Blue introduced it to the world of servers. Earlier this month, IBM announced that the so-called SAN Volume Controller, or SVC, now works with EMC's systems. "This game-changing storage play will allow customers to spread data across both companies' IBM and EMC's storage hardware without worrying about the normal incompatibilities," an IBM marketing document claims. Translation: IBM will save you money and let you forget the headache of working with systems from different vendors, a major plus since few businesses are willing to simply rip out an old system when it's time for an upgrade.