EMC to face critics who worry it’s stagnating

EMC Corp., the largest technology company in Massachusetts, thinks Wall Street doesn’t understand it.

So on Tuesday, the Hopkinton company — known best for its data-storage business, it employs 68,000 people worldwide and reaps $24 billion in annual revenue — will hold a strategy summit in New York City. EMC hopes to convince analysts, investors, and others it really is on the right track.

Most of its top executives, including longtime chief executive Joseph Tucci, will be present to share information, review strategic options, answer questions, and listen to ideas and criticisms.

But chances are the summit won’t change many minds. Increasingly, critics say EMC has become a stagnant goliath that isn’t doing enough to pump up its share value and articulate a long-term vision for the 36-year-old company.

They want to hear that EMC plans to sell its 80 percent stake in VMware Inc., a fast-growing provider of cloud services and computer virtualization, and possibly spin out other business units. They also want to hear about a succession plan for Tucci, who has signaled he plans to step down later this year.

They won’t. The company has no intention of announcing a sale of VMware or a succession plan, EMC officials said.

“It’s going to be a huge disappointment,” said Daniel Ives, an analyst at FBR Capital Markets & Co. and a critic of EMC’s strategy. “The status quo is the worst possible outcome for EMC. Investors want more. They want to know what’s next.”

EMC would not make executives available for interviews. But the company has acknowledged it has reached a crossroads, as established tech companies struggle with how to proceed in an era that’s rapidly disrupting and transforming many business models.

In EMC’s case, the rise of cloud computing has hurt its traditional data-storage business, which is growing at only a 2 percent annual rate.

Last year, the company had extensive merger talks with one of its main rivals, Hewitt-Packard, but a number of issues, including a sale price, prevented a deal from being reached, according to published reports.

The mere thought of EMC struggling — and engaging in merger talks — worries many in Massachusetts, where EMC employs about 9,500 people. It’s one of the state’s last remaining tech titans that can trace its roots to the 1980s. A merger would probably mean job losses and could disrupt the state’s economy and tech community.

Chris Anderson, president of the Massachusetts High Tech Council, said giants such as EMC provide a critical mass for a tech community, attracting workers and other businesses that feed off of them. “They are an important part of the Massachusetts economy,” Anderson said of EMC, which is not a member of the council.

EMC has made it clear that it thinks its “federation model” works. EMC’s federation has three pillars: its classic storage servers and related products (known as EMC Information Infrastructure); VMware, whose stock trades shares separately; and Pivotal, a cloud-computing software maker jointly created by EMC and VMware.

EMC’s core storage business, which includes its RSA Security unit and flash-storage technology called XtremIO, is still its main revenue driver, generating $18 billion last year. But it’s expanding at a much slower rate than VMware, which grew by 16 percent to $6 billion last year, and Pivotal, which grew by 27 percent to $227 million last year.

“Our strategy is working well despite a challenging and rapidly changing IT environment,” Tucci said in a recent financial report. “The company stands at the forefront of our industry with a leading portfolio of solutions and services.”

EMC also points out it posted a record $7.1 billion in revenue in the last three months of 2014, up 5 percent from the year-earlier quarter.

Srini Nandury, an analyst at Summit Research Partners in New York, said EMC remains “one of the best storage companies around” and praised it for diversifying over the years, largely through acquisitions. EMC has purchased 90 companies since Tucci became chief executive in 2001.

“They say in hockey that you shouldn’t skate to the puck, but rather skate to where the puck is going, and EMC always gets to the place where the puck is going,” Nandury said, adding that selling VMware would be a “bad, bad idea.”

Many critics think otherwise.

Elliott Management, a New York hedge fund that owns about 2 percent of EMC’s shares, last year called for the sale of VMware, arguing that the fast-growing subsidiary was siphoning away investors who might otherwise invest in the parent company, thus lowering the value of EMC’s shares.

EMC’s stake in VMware is valued at about $30 billion.

As part of a temporary truce, EMC agreed in January to add two directors who were acceptable to Elliott in exchange for the hedge fund supporting EMC’s slate of directors and muting its criticism of EMC through September 2015.

But the deal has not silenced other critics.

Angelo Zino, a senior analyst at S&P Capital IQ, noted that EMC’s share price has hovered in the $20 to $30 range for years. EMC stock closed Friday at $27.65. “What you have now is many disappointed investors,” Zino said. “EMC needs changes.”